Growth in South Africa’s real gross domestic product (GDP) was measured at an annualised rate of 4,9% in the second quarter of 2008 – up from 2,1% in the first quarter. This rebound in economic growth in the second quarter was concentrated in the mining and manufacturing sectors, mainly as a result of improved electricity supply conditions after major disruptions on this front occurred in the preceding quarter. In the first half of 2008 real economic growth was down to an annualised rate of 3,5% compared with 4,6% in the second half of 2007.
Although interest rates were left unchanged since June this year, the household sector still experienced severe financial pressures in recent times on the back of rising inflation, significantly higher debt servicing costs as a result of the cumulative 500 basis points rise in interest rates since mid-2006, and a declining trend in real household disposable income growth to only 2% in the second quarter of 2008 from a level of 9% in the fourth quarter of 2006. The abovementioned rise in interest rates caused mortgage repayments to increase by a total of 35,6% since June 2006, which, together with the effect of the National Credit Act and the tightening of credit criteria by banks, had a significant impact on the ability of households to afford further debt, especially mortgage finance.
Based on household debt as a percentage of disposable income, which was somewhat lower at 76,7% in the second quarter this year from 78,2% in the first quarter, the tightening of monetary policy over the past two years and the National Credit Act are seemingly having a positive effect on the high debt levels of households. Growth in real fixed capital formation in residential buildings declined further in the second quarter of 2008, to 3,9% year-on-year (y/y) from 5,5% y/y in the first market overview Growth in South Africa’s real gross domestic product (GDP) was measured at an annualised rate of 4,9% in the second quarter of 2008 – up from 2,1% in the first quarter. This rebound in economic growth in the second quarter was concentrated in the mining and manufacturing sectors, mainly as a result of improved electricity supply conditions after major disruptions on this front occurred in the preceding quarter. In the first half of 2008 real economic growth was down to an annualised rate of 3,5% compared with 4,6% in the second half of 2007.
Although interest rates were left unchanged since June this year, the household sector still experienced severe financial pressures in recent times on the back of rising inflation, significantly higher debt servicing costs as a result of the cumulative 500 basis points rise in interest rates since mid-2006, and a declining trend in real household disposable income growth to only 2% in the second quarter of 2008 from a level of 9% in the fourth quarter of 2006. The abovementioned rise in interest rates caused mortgage repayments to increase by a total of 35,6% since June 2006, which, together with the effect of the National Credit Act and the tightening of credit criteria by banks, had a significant impact on the ability of households to afford further debt, especially mortgage finance. Based on household debt as a percentage of disposable income, which was somewhat lower at 76,7% in the second quarter this year from 78,2% in the first quarter, the tightening of monetary policy over the past two years and the National Credit Act are seemingly having a positive effect on the high debt levels of households.
Growth in real fixed capital formation in residential buildings declined further in the second quarter of 2008, to 3,9% year-on-year (y/y) from 5,5% y/y in the first quarter. This was significantly lower than the more than 20% year-on-year real growth recorded during the course of 2005 and is a reflection of the slowdown in the housing market on the back of changed economic conditions over the past two to three years. In addition to this, current trends in residential property price growth, mortgage advances, building statistics, and confidence levels in the building and construction industry are further indications that the housing market has slowed down significantly over the past year or two.
The result of the abovementioned developments was that business conditions and short- to mediumterm prospects have deteriorated in most industries and service professions related to the residential property market.
Compiled by:
Jacques du Toit
Senior Property Analyst
Absa Home Loans
I think another positive outcome regarding the National Credit Act has to be that South AFrica was not hit as hard as the rest of the world when the USA economy started to fall.
Just goes to show, we might criticise the NCA, but in the end it is working.
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