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Highest growth in home loans since 2010

Year-on-year increase of 4.9% in August bodes well for the property sector.

South African banks are upping their lending to home buyers and, if the growth in mortgage advances continues, it will contribute to an uptick in the residential property market.

That’s the view of FNB property economist Siphamandla Mkhwanazi, who spoke to Moneyweb on Wednesday, following the release of the latest FNB Residential Property Barometer.

Mkhwanazi notes in the bank’s quarterly barometer bulletin that data from the SA Reserve Bank shows residential mortgage advances by the country’s banks grew 4.9% year on year in August – the highest growth since November 2010.

FNB’s Siphamandla Mkhwanazi. Image: Supplied

“The progressively faster pace of growth in mortgage advances this year could be a positive outlier for future growth and see an uptick in the residential property market,” he tells Moneyweb.

Much-needed liquidity injection

“While the property market has underperformed in recent years, the growth in mortgage advances this year has provided some support, injecting much-needed liquidity into the market.”

Read: Capital flight: SA property companies invest billions more offshore

Mkhwanazi says that since the beginning of this year, mortgage advances have outpaced average house price growth in South Africa for the first time since June 2011. “Transactions data shows that this has boosted transaction volumes, specifically in the R700 000 to R1.8 million, and R1.8 million to R3.5 million price bands.”

He adds that while much-needed economic growth and increased employment levels will continue to be the main factors contributing to a long-term turnaround in the property market, lower interest rates and “constructive lending” should provide some support to the market in the short- to medium term.

“The growth in mortgage advances by banks is a positive and should see an increase in residential property transaction volumes, which showed mild growth at around 0.9% in August,” he says.

Banks vying for market share

“I think the growth in mortgage advances in August – its highest growth level in almost nine years – is due to increased competition between the banks.

“It’s not a case of the pool of customers getting bigger; it’s a case of banks looking to grow market share,” says Mkhwanazi.

“Banks have actually been too cautious to lend in recent years, which saw mortgage advances in the residential property sector hit record lows. It seems things are starting to normalise now, as banks realise that they need to lend in order to grow.”

Read: Buyers from Africa boost foreign demand for SA homes

Economist Mike Schüssler from Economists.co.za shared similar sentiments with Moneyweb. He says the uptick in mortgage advances is a sign that banks are “getting back into” the residential property market.

Banks have realised they need to be in the market, says Mike Schüssler. Image: Moneyweb

“While property prices have gone nowhere in recent years, banks have also been at fault as they got out of the residential property market, reducing lending to historic lows,” says Schüssler. “They have realised that it is not a market they should be out of, which may be behind the recent growth in mortgage advances.”

He cautions, however, that the “inflationary effect” in the growth of mortgage advances needs to be considered.

“If you take inflation out of the equation, growth it still modest. Nevertheless, any growth is welcome. If it continues, there may well be growth in residential sales volumes. There are sectors of the market that are still doing well, such as homes around the R1-million range.”

Volumes by price buckets (2gma)

Source: FNB Economics

Schüssler says the residential property market may have bottomed out, with it being a “buyers’ market” now. However, he notes that it is still early days in terms of stronger growth in sales volumes and a market recovery.

While actual sales volumes are growing modestly based on data from the Deeds Office, his research calculations show that home sales volumes derived from transfer duties are down 6.5%.

Read: The taxman is coming for your rent 

“I looked at transfer duty figures from the treasury and then ‘deflated’ it based on the house price index from FNB. This effectively shows that transfer duties from home sales are still down from around 2017. It basically means that the tax man is getting less tax from home sales.”

 

“The number of houses being sold may be up, but the overall value of these sales is still down on previous years,” says Schüssler.

“It’s a case of more homes in the lower price brackets being sold, but the total value of these sales remains lower.”

Meanwhile in the FNB report, Mkhwanazi notes that, based on data from the Deeds Office, loan-to-price (LTP) ratios for mortgages are also growing.

“This means lenders are also willing to finance a relatively bigger proportion of the purchase price of a house.

“LTP reached 90.6% in the second quarter of this year – its highest level in over a decade or since the peak of the property boom in 2007/2008.”

Lower deposits

Pam Golding Property Group CEO Dr Andrew Golding agrees, describing a similar positive trend that has been reported: “According to ooba, mortgage deposits required by banks have eased back to levels last seen prior to the 2008/9 recession, currently standing at 10.8% of the purchase price.

“Notably, ooba also reports that in August the effective approval rating for mortgages was 82.6% – the highest level to date in the ooba data series, which commenced in May 2007. This is encouraging as first-time home buyers account for just over half of all mortgages extended by ooba for the calendar year to date.”

Golding says that from a cyclical point of view the property market “is at or near the bottom of a down cycle” and that this is therefore a “good time to buy”.

Both Golding and Mkhwanazi are hoping for another interest rate cut this year, which they say will buoy mortgage lending and be a further positive for the residential property market.

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So their lack of credit provision increased the downturn?
Now their graceful credit provision will spur the economy again?

These bank capstans of the economy “doing the work of god” was it not?

Their function in the economy can be more regulated.

As responsible businesses looking out for systemic country risk and their own bottom line, the banks have probably been cautious while noting the overall pattern of looting and theft of anywhere between 500 billion, up to 1 trillion rand – under what has come to be known in the common discourse as – state capture.

If I was a bank, no! I would not have lent either.

…”Golding says that from a cyclical point of view the property market “is at or near the bottom of a down cycle” and that this is therefore a “good time to buy”.”

Is an estate agent (or second hand car salesman) ever going to say it is a bad time to buy?

Duh!

I think they actually mean “from a cynical point of view……”.

This reads like ‘paid for content’.

A lot of the so-called articles by Suren Naidoo come across as PR.

“If you take inflation out of the equation, growth it still modest. Nevertheless, any growth is welcome.”

Taking inflation out of the equation serves no purpose, aside from re-distribution. Furthermore, when considering that SA has the highest rate of inequality in the world, the way in which “inflation” is defined is unrealstic. This is due to the fact that the top 10-20% tier of the population, which own 80% of the resources in the economy, such as land and capital, experiences an inflation in the region of 7-8%. Therefore, if property prices are not adjusting within this range, how can we speak of growth? Is it not time to revise the definition of inflation?

Revise the definition of inflation so the rich can be victims too!

The inflation basket considers many rich people things like car rental, municipal rates and holidays.

*to revise the methodology used to determine the rate of inflation?

We did that when we moved from CPI to cpix https://goo.gl/search/cpi+vs+cpix
The importance of CPI and CPIX – Moneyweb CPI is the Consumer Price Index. According to STATS SA, CPI is “a general measure of price change of consumer goods and services bought by typical households in SA. … CPIX is “is the CPI excluding interest rates on mortgage bonds.

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