|Much of the driving force behind the stable growth in the residential property market comes from the increasingly affluent black middle class, according to an article in the February/March edition of Intellectual Property.|
Improved black household incomes have changed buying patterns in housing – and, as is evident, in other consumer sectors such as motorcars, household appliances and retail in general.
The trend is most noticeable in Gauteng, the country’s heavily populated powerhouse. Says Ronald Enik, the Pam Golding Group’s chief operating officer: “Ownership of homes by black people in Johannesburg’s affluent northern suburbs has increased by 700 percent in the past five years and the black middle class now accounts for more than 20 % of Pam Golding Properties’ business – up from 7% in 1998.”
The group’s empowerment division has opened nine new black-owned franchise offices and has another 16 are in the pipeline. It operates training programmes for previously disadvantaged entrepreneurs and potential estate agents.
Increased home buying by black people has been underpinned by growth in incomes and spending power – plus the significantly lower interest rates which have enabled black households to put down deposits and raise mortgage bonds.
The housing boom, however, also has its flip side in that soaring prices have meant that many aspiring black buyers have found moving to more affluent suburbs unaffordable. The result has been that people stay where they are, but spend money on upgrading their existing homes – a fast-growing development across all race groups in the country.
In 1993 black households contributed less than 20% on housing and electricity. This has doubled since South Africa became a democracy – and it is gaining momentum,. Black households are spending more because they are earning more, also entering income ranges which were once exclusively white.
According to Standard Bank’s economics division, the black high-income group is growing faster than other black income groups.
In the 1980s, black households’ share of total personal disposable income (PDI) was around 30%; by 2003 this had increased to 45%.
Says Standard Bank: “The economic recovery, coupled with redistribution economic polices put in place since 1994, resulted in the PDI growth rate of the average non-white household being relatively higher than that of the average white household. The purchasing power of non-white households and their presence in the retail market subsequently increased.
“The average Asian household had the highest annual growth rate in PDI between 1993 and 1999 of 11%, followed closely by the average black household’s PDI annual growth rate of 10,1%, albeit from very low initial income levels. Coloured and white households’ PDIs had the same annual growth rate of 7,7% over the same period.”
Unfortunately. The spread is widening between the wealthiest and the poorest black income groups. The growing number of black households are entering the higher income groups and exacerbating the income inequity and exhibiting new consumption patterns that are having an impact on the economy’s spending patterns.
For example, the number of black individuals who can now afford new passenger cars increased between 2000 and 2004 by almost 50%. Black households are spending more on holidays and recreation, although, as Standard Bank’s report points out:
“Culturally, black households do not rank holidays as a need near the top of their ‘to do’ list. Higher black disposable incomes may have opened up the option of going on holiday; however, it is a cultural perception change in favour of holidays rather than an increase in disposable income that will precipitate an interest in this product type.”
Alongside the black population’s increased expenditure contribution towards assets such as housing and motor vehicles, is an increased presence in insurance and investment. Says Standard Bank: “ In 1993 insurance and funds were largely a white domain; white households made up 70% of the expenditure and less than 20% was by black households. In 2003, insurance and funds had 33 % and white households contribution had declined to 53%.
There is still a perception that the black group is under-insured. However, says the report, black households perceive insurance to be a grudge purchase and prefer to spend their incomes on more tangible status goods.
There is a common denominator which determines the sustainability of household spending across all races – and that is the affordability of households to maintain their total debt burden, not simply mortgage bonds, particularly households who are relative newcomers to credit.
There is some concern about the impact of brisk rises in house prices. However, the national mortgage-to-income ratio is still relatively low. Consumers’ high overall debt-to-income ratio of 61,8% (in the last quarter of 2005) is also of concern. But Standard Bank points out, “there are some encouraging signs regarding the health of households’ finances. Non-performing loans, as a proportion of total loans, is still relatively low. This is not only the case for mortgage loans but also with, for example, credit cards.”