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I am a qualified Attorney. I specialise in Property Law, Commercial Law, Corporate Law and Trusts.
Please visit our website at www.prop-law.co.za for more details.
I am an elected Committee Member of the Property Committee of the Association of Pretoria Attorneys and through my involvement, I like to ensure that I am constantly at the "sharp-end" of Conveyancing Practice.

I am the elected Chairman on the Gauteng Council of SAPOA. The South African Property Owners Association (SAPOA) is the biggest and most influential institution in the property industry. SAPOA members control about 90% of commercial property in SA, with a combined portfolio in excess of R150 Billion (about $22 Billion). I am also on the National Council and the National Legal Committee of SAPOA.
Member of the Institute of Directors South Africa and Member of the Sirdar Governance Panel.

28 January 2014

Inflation holds back mortgages

Once bitten ... twice shy?

Are the banks still caught up in the mindset of the Meltdown.

It has long been my contention that the Global Meltdown was intiated by the US property market (in particular the sub-prime market) and it will be the increased health of the US property market that will signal the arrival of a post-meltdown property market.  The stats out of the US have been encouraging for quite some time now.

The are three question in my mind, namely:

1. Where exactly in the cycle the US property market finds itself?  (Will tapering affect the cycle?)

2. What is the lag time between the US and SA property markets likely to be?

3. What is the appetite of SA Banks?

There is some analysis of question number 3 in the article below.

Gareth Shepperson
Commercial and Property Attorney

Inflation holds back mortgages

Muted demand for mortgages as South African consumers grapple with higher inflation and sluggish economic growth is signalling tepid bond issuance by the nation's four biggest banks this year.

Debt sales by lenders including FirstRand and Nedbank may be little changed from last year's R40 billion, according to Megan McDonald, the head of debt primary markets at Standard Bank. Mortgage growth may languish at 3 percent this year, according to Barclays Africa Group.

Issuance by the largest banks may be limited to covering maturing securities as credit growth gives way to a slump in consumers' disposable income and as the economy struggles to gain traction. Rising food and petrol prices and labour strikes may hamstring lending until the second half, when a recovery in developed nations may start to boost the South African economy, according to McDonald.

'The underlying economic conditions are showing that we won't see significant growth. I estimate R40bn to R50bn.'
The value of home loans granted in November last year stagnated at about R1.11bn, according to central bank data. The ratio of household debt to disposable income rose to 75.8 percent by the second quarter of 2013, the highest level in a year, the data show.

'In 2014 and 2015 the consumer will be vulnerable to higher interest rates, should they occur, and the rising cost of living, given the relatively high level of indebtedness and slowdown in real disposable income,' said Annabel Bishop, an economist with Investec.

With South Africa's economy slowing last year and its unemployment rate the third-highest among 60 countries monitored by Bloomberg, rejection rates on credit applications hit a record high of almost 58 percent in the third quarter, according to the National Credit Regulator.

Annual growth in mortgage advances, which reached more than 30 percent in 2007, fell to less than 5 percent in 2010 and remained below or close to that, according to data compiled by Investec from central bank figures.

Standard Bank, Africa's largest lender, has 68 rand-denominated bonds that will mature this year, Bloomberg data show. Depending on funding needs, the banks often roll over the debt and extend the term of the bond. The lender was 'considering all of its options' for bond sales in the year ahead, McDonald said, declining to comment on the bank's debt plans for this year.

Nedbank, South Africa's fourth-largest lender, last sold debt in November to meet general funding requirements, raising R5.8bn last year. Any increase in bond sales would depend on an advance in lending, deputy treasurer Gary Tamblyn said.

FirstRand Treasurer Andries du Toit declined to say how much the bank may issue.

Consumers are struggling to repay debt with one in every two people with credit in South Africa in arrears, says the National Credit Regulator.

'My sense is that there may be a little more issuance if we see the asset growth, but the pessimist in me says any talk of recovery overseas and growth in South Africa is still a lot of smoke and mirrors,' Tamblyn said.

The central bank has left its repo rate at 5 percent since a surprise cut in July 2012.

'Our view is that rates will remain flat until we see a pick-up in economic activity, but the caveat here is inflation,' said McDonald.

'If inflation breaches the 6 percent upper target consistently, South Africa may raise interest rates. A hike may choke any green shoots of growth.'


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