Nov 30, 2016 12:41:24 AM

Notes from a very important week


If more evidence of the challenges confronting South Africa households was needed, data released last week by Stats SA provided it. With both consumer inflation and the unemployment rate up, the difficulties that many South Africans have in paying their bills seem set to intensify. This will reverberate through the country’s property market.

Rising consumer inflation points to the most immediate problem. At 6.4% for October, it is at its highest level in eight months, and above the Reserve Bank’s target range of 3% - 6%. Most seriously, inflation has been driven in large measure by the rise in food prices, which have risen by some 12% over the past year.

A consequence of the drought, rising food prices will hit lower and middle-income households particularly hard, since food represents an increasingly large portion of their income, and one not easily reduced.

South Africa’s unemployment rate, meanwhile now, sits at 27.1%, the highest level in 13 years. This points to what is arguably the most persistent and debilitating problem confronting the country – the inability of millions of people to find work.

Together, these two factors are putting a particular squeeze on the South African property buyers. This confirms large volumes of industry data and our experiences as property agents. Lower-income buyers are finding it increasingly difficult to service their home loans as their incomes are stretched. The difficulties of finding work mean, for example, that households might be depending on one income, where two would be optimal.

Even more affluent buyers are under pressure, sometimes being forced to liquidate investments or purchasing smaller properties than they might wish for.

However, not all is pessimistic. South Africa’s rising unemployment rate masks the fact that between the second and third quarters of 2016 over a quarter of a million new jobs were created. The rise in the unemployment rate owed much to greater number of people seeking work. While this does not address the severity of South Africa’s unemployment malaise, it does demonstrate that there remains some dynamism in the economy.

South Africans are waiting anxiously as economists are predicting a 40% chance of downgrade from S&P at the end of the week.

Moreover, the Reserve Bank did not hike rates, meaning that property buyers will be spared the increases that this would have implied.

Concerns were expressed about the direction South Africa is moving in, but for now we have gained some valuable breathing space. It is crucial that we as a country use it.

Statement by
Richard Gray
Harcourts Africa Chief Executive Officer