Housing in Southern Africa July 2016

Housing

Decline in mortgage lending

F NB Household and Property Sector Strategist, John Loos, says that the Reserve Bank data showed a significant drop year- on-year. A holiday weekend in March may have made some difference to the level of loans processed, but some decline has nevertheless been antici- pated for some time. The June 2016 SARB (Reserve Bank) Quarterly Bulletin showed the value of newmortgage loans granted (Residential, Commercial and Farms) to have declined by -14,57%. This is significantly slower compared with positive growth of +15,2% year-on- year, in the previous quarter. This shows a significant turnaround since the 50,2% year-on-year, high reached in the first quarter of 2014. The value of residential mortgages granted declined by -13,8% year-on- year, while that of commercial mort- gages declined by -14,9% in the same period. Both these sectors’ negative growth rates reflect a significant slowing on the prior quarter’s posi- tive growth. The Residential Market is arguably the ‘leading sector’, with home loan applicants responding more swiftly to economic or interest rate changes. This market has responded to rising interest rates since early-2014, as well as the previous four years of deterio- rating economic growth. Loos says, “The FNB Estate Agent Survey’s Residential Activity Rating had been pointing towards a slow- down in residential mortgage growth for some time. We utilise this Activity Rating as a ‘leading indicator’, with its year-on-year growth peaks, leading

The South African Reserve Bank has reported that slow growth in the residential sector has changed to a decline in mortgage lending, in residential andnon-residential sectors, during the first quarter of 2016.

new mortgage lending growth peaks by as much as three or four quarters. After the Residential Activity Rat- ing’s year-on-year growth last peaked in the third quarter of 2014, it steadily slowed into negative growth territory by the second quarter of last year, and has remained in negative terri- tory since. Examiningmortgage loans granted on existing buildings versus vacant land and construction, all three cat- egories dipped into negative territory during the first quarter of 2016. The largest decline was in vacant land as values dropped by -23% year-on-year, in the first quarter. The vacant land segment is normally the most cyclical, so this should not be surprising as interest rates rise and the economy shows weakness. By comparison, the value of Mort- gage Loans Granted for construction and existing buildings declined by 11%, and 14,85% year-on-year re- spectively. The broad slowdownmore-or-less coincided with the onset of interest rate hiking in early 2014. Loos adds, “First quarter Real Gross Domestic Product (GDP) con- traction and rise in interest rates sug- gests that further decline in the value of new mortgage lending is likely in the near term.” On the non-residential side, too, almost-recessionary conditions are unlikely to boost demand growth for commercial mortgage loans. ■

July 2016