Landlords, tenants and homeowners have not been left unscathed in the wake of petrol price increases, a stagnant economy and impending municipal rate hikes.
While consumers are nowhere near defaulting on debt, including mortgages, as they did in 2009, things are getting tougher, say analysts.
The petrol price increase this week has added to the woes of South Africans, some of whom no longer receive a 13th cheque or annual salary increase, but face a rising cost of living.
Rudi Botha, chief executive of bond originator BetterBond, says a growing percentage of the average consumers’ monthly take-home pay is now being used to repay “bad debt” rather than “good debt”, such as a home loan.
This has been indicated in the latest Reserve Bank statistics that show year-on-year growth of 5.3% at the end of May in unsecured credit extension in the household sector, compared to 3.1% at the end of December.
Personal and “pay day” loans, which make up almost 59% of unsecured credit, showed faster growth of 5.7% at the end of May, compared to 2.7% in December.
Secured credit extension, which includes home loans, leases and vehicle instalment sales, showed annual growth of 3.9% at the end of May, with household mortgage balances recording year-on-year growth of 3.3%.
Botha says prospective buyers whose disposable income is diminished by additional debt will find it more difficult to qualify for home loans.
This is because the banks are obliged not only to consider an applicant’s income and credit record when deciding whether to approve a home loan, but must also look closely at their regular household expenses and existing debt repayment commitments, he says.
In the rental market, stats from TPN’s Residential Rental Monitor show some tenants are finding it harder to pay their rent, particularly those in the lower end of the market, or under R3 000, and the upper end, over R25 000.
Landlords have been warned they may lose tenants if they are not willing to negotiate lower annual increases.
Jacqui Savage, national rentals business development manager for the Rawson Property Group, says given the economy, losing a tenant because of unreasonable rental escalation is a real possibility, even in traditionally high demand areas such as the Western Cape.
Annual rental increases are currently under significant pressure because of consumer economic pressure, agrees Andrew Schaefer, managing director of national property management company Trafalgar.
He says it is “very, very rare to achieve a 10% increase currently without notices and vacancies arising”.
“Maket-related increases are currently 6% to 8%, depending on the building vacancy context and location. I would say a good tenant with a positive payment record would be well positioned to negotiate a rental increase down to CPI, around 5%.”
Schaefer says as financial pressure on households continues to mount, consumers are increasingly putting their home-buying plans on hold and opting for rental homes instead.
“Despite this, however, the latest statistics from Payprop show monthly rentals are currently only increasing at an average of 4% a year, and that tenant default rates are on the rise in most areas and price categories.”
While FNB economist John Loos says the consumer is a far way from being as financially stressed as they were in 2009, this stress has risen slightly since 2015.
“You will find people constrained (cutting back) but not stressed (can’t pay back debt),” he says.
Looking further into the year, especially if the economy remains stagnant, the property picture is not upbeat.
The latest 2018 FNB Household Sector Debt-Service Risk Index, released this week, is an early warning indicator of vulnerability, and it shows deterioration.
It’s not the only early warning bell for the property market. Signals from the FNB Estate Agent Survey suggest the acceleration in year-on-year house-price growth, seen the past month, may be short-lived.
June 2018 saw the FNB House Price Index growing by a faster 4.1%, year-on-year, up from the previous month’s 3.9%, and from a February 2018 low of 2.9%.
But, warns Loos, the signs are increasingly pointing to a slower average house-price growth year this year over last year, despite a recent up-tick, and possibly the fourth consecutive year of price growth slow down.
He believes the recent mild acceleration in house-price growth is the lagged impact of that brief sentiment improvement in the country early in 2018 on the back of the major political leadership changes.
In real terms, however, when adjusting for Consumer Price Index inflation, house prices remain in decline.
“A first quarter Gross Domestic Product contraction suggested little support for the housing market from the economy in 2018. Halfway through the year, average house-price growth for 2018 sits at 3.4%, slower than the 4.2% average growth for 2017.”