Rising household debt holding back home buying, but, prices will continue to rise

Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, says that a confusing scenario is now being played out in the residential property sector: demand for home ownership, he says, at the lower, lower middle and middle levels has never been stronger – but serious household debt and tarnished credit records are still cancelling out a very high percentage of potential home owners.

Absa, says van Alphen, have reported that South African household debt now stands close to 76% of annual incomes while debt due to credit cards, overdrafts, general loans and advances has risen to 20% of total incomes. The National Credit Regulator, he says, now lists 48% of credit active customers as having impaired records.

“These figures,” says van Alphen, “show why it is necessary for those of us working in bond origination divisions to jump through so many hoops in order to reinstate people and to qualify them as house buyers. However, the results (a 70% hit rate in his division) show that the effort is worth it.”

Those few still hoping for a stalling or a significant slowdown in house price growth to make homes more affordable are, says van Alphen, indulging in a pipedream and should look at the latest Absa figures. One set of these shows that in middle segment housing (which has the largest turnover), although nominal growth slowed in the third quarter of this year to ± 9%, growth is still way above the negative levels of 2012 and by most people’s standards is satisfactorily high. Much the same pattern, he says, is also evident in the luxury market, the difference being that here the price growth is continuing. Only in the affordable house market is nominal growth now close to zero (and real growth 4 to 5% negative).

“The message from the Absa figures is quite clear,” says van Alphen. “The majority of potential house buyers can expect to pay significantly more next year and the year after. Even in the affordable market I predict that we will see a revival in house price growth by mid-2014.”

House price growth, adds van Alphen, will be further stimulated by the rising cost of new building, which is ‘absolutely unpreventable’. Year-on-year, Absa figures curbed for bonds awarded, showing that the cost has grown by 11,9%. On average, therefore, it is now 37% cheaper to buy an existing home than the equivalent new home. This, says van Alphen, is one of the reasons why so many home buyers are opting for sectional title units today, where a lack of gardens and outdoor space is very often made up for by excellent interior finishes and fixtures – the unit having the additional advantage of being more secure than a freehold home.

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