Affordability in South Africa’s housing sector is under strain as a result of a tough economic climate.
Richard Gray, Chief Executive Officer of Harcourts Africa, says according to Absa’s Housing Review for the third quarter of 2016, home buyers are now under pressure.
The Absa report points to a variety of factors placing pressure on the affordability of residential property in South Africa.
The factors highlighted are, rising interest rates and inflation, slow economic growth and pressure on household disposable income.
The report notes that the gross domestic product (GDP) is forecast to contract marginally during 2016, while consumer price inflation is expected to reach 7% by the end of the year.
According to the report, the key factors contributing to inflation have been the increases in food and fuel prices, as well as the country’s weak exchange rate, which is affecting the financial situation of many consumers.
Scaling down payments:
Many stressed out South Africans who are trying to make ends meet are seeking relief by scaling down their payments on long-term debts. Statistics released from Old Mutual’s Savings and Investment Monitor in July, indicate that over two thirds of bondholders are paying the minimum amount permissible to their bonds.
The report shows that only 14% are paying more than required for their monthly bond payments.
This indicates a significant decline in comparison to 2013 which saw 31% making extra monthly contributions.
Which sector is most affected?
Consumers who are most vulnerable to the rising cost of living are buyers within the middle- and low-income bracket.
For buyers in this sector who were most likely to be making minimum payments already, the prospect of defaults and the chance of losing their home is a serious concern – especially in households that have been hit with unemployment.
Future expectations:
According to Gray, the trend is likely to continue over the medium term, compounded by the threat of more interest rate hikes. Any relief for property buyers will ultimately be dependent on the economy’s ability to make a positive turnaround, in spite of the discouraging forecast for GDP growth.
Property is still a good investment:
Gray advises that property is still however, an excellent investment to make.
It’s important for buyers to plan ahead and be calculated in their decision-making to ensure they don’t over-commit financially.
Leaving room in your budget for any unforeseen shocks is critical to help ensure a successful property purchase during tough economic times.