Household Sector Mortgage Advances growth may begin to outpace Corporate Mortgage Advances growth in the near term, according to FNB. This has hardly ever happened since early-2014, says John Loos, FNB property strategist and property finance. According to the South African Reserve Bank, credit data for September reflects early signs of the changed relative strength of the residential vs commercial property markets in recent months. The FNB survey indicates Household Mortgage Advances growth may become the relative outperformer in the near term. The bank expects that Corporate Mortgage Advances growth will continue to slow in the near term. – Denise Mhlanga
September Mortgage Advances
Corporate Mortgage Advances growth continues to slow, reflecting recent commercial property market weakness. Meanwhile, Household Mortgage Advances show early signs of acceleration as residential property market heats up.
Since early-2014, the more commercial property-driven Corporate Mortgage Advances growth rate has significantly outpaced the strongly residential-driven Household Mortgage Advances category for most of the time.
The strong recent divergence in strength between the now relatively strong residential property market and the weaker commercial property market may see Household Mortgage Advances become the relative “outperformer” in the near term.
Household Mortgage Advances growth still slower than Corporate Mortgage growth but showing early signs of acceleration. The SARB credit data for September reflects early signs of the changed relative strength of the residential vs commercial property markets in recent months.
Since early-2014, Corporate Mortgage Advances growth has been significantly stronger than Household Sector Mortgage Advances growth, the latter having been muted in the aftermath of the pre-2008 housing bubble and all of its extreme lending growth, while the commercial property market had remained relatively “solid”.
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In 2020, however, in response to the Covid-19 Crisis lockdown period, and its severe impact on economic growth and subduing of inflationary pressures, the SARB cut interest rates aggressively by 3 percentage points.
Typically, the household-driven residential market responds strongly to changes in the cost of credit. However, the commercial market’s participants are more focused on the state of the economy it would appear. The economy is still very weak albeit recovering partially.
As a result, the commercial property is in the relative doldrums, and residential property almost surprisingly strong. In comparison, we are just beginning to see their trends reflect the divergence in strength in the two major property markets stronger. They recorded 7.7% year-on-year (y/y) growth in September, whereas Household Mortgage Advances growth was a far slower at 3.1%.
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— THIZOZO🍥 (@THIZOZO_MOKOENA) November 5, 2020
However, Corporate Mortgage Advances growth continued to slow from an April high of 10.3% and further from 8.3% in the prior month of August. By comparison, the Household Mortgage Advances category’s September growth rate was also slower than its 5% y/y rate of April. This has started to accelerate from a 2.9% low as at July.
FNB says growth in outstanding mortgage advances typically lags trends in new mortgage lending. The former being driven by new lending trends and trends in existing loans being paid down or cancelled.
The Household Mortgage Advances growth acceleration has been small to date, and is slower than the Corporate/Commercial Sector Mortgage Advances growth rate.
FNB surveys suggest that Household Mortgage Advances growth may become the relative outperformer in the near term. The FNB Property Broker/Estate Agent Surveys points to the likelihood that Corporate Mortgage Advances growth will continue to slow in the near term. FNB says growth in Corporate Mortgage Advances may well be overtaken by an acceleration in Household Mortgage Advances.
The survey asks respondents for their perceptions of market activity on a scale of 1 to 10, 10 being the strongest level of activity.
Sharp interest rate cutting has led to a sharp resurgence in perceived residential property activity with Q3 survey activity recording 6.86. Post-lockdown levels remained far more muted at 4.64 for industrial, 3.37 for retail and 2.97 for office property.
There is a possibility that Household Sector Mortgage Advances growth may begin to outpace Corporate Mortgage Advances growth in the near term.
Capitec, South Africa’s largest retail and digital bank based on number of clients, has announced its foray into the home loan market in partnership with SA HomeLoans. We can expect lowest interest rates, more competition for the other banks which is good for the property market
— Lakes Chakane (@ChakaneLakes) November 6, 2020
Residential accommodation has outperformed other areas during the pandemic. Residential property as an asset class in South Africa is very underinvested.
Rian Reyneke, Joint Group CEO: Ithemba Properties#IHSConference2020
— Nedbank CIB (@NedbankCIB) November 5, 2020