Director and Licensee of Seeff Zimbali, Andreas Wassenaar explains what we can expect in terms of future activity in the property market. Photo: Supplied

DURBAN – Director and Licensee of Seeff Zimbali, Andreas Wassenaar explains what we can expect in terms of future activity in the property market, by looking at trends in the demand for mortgage finance.

"Mortgage finance is the fuel that drives the property industry. The South African Reserve Bank (SARB) leading indicator is an excellent predictor of the general direction of the value of mortgage loans granted. This index grew at 6.55 percent at the beginning of 2017, which was its most recent peak, after which it slowed to 2.05 percent by the third quarter of 2018 – thereby predicting that we were due for slower new mortgage lending growth," said Wassenaar. 

This was confirmed by the December 2018 SARB Quarterly Bulletin, which showed that the value of new mortgage loans granted for residential and commercial property and farms had declined at a year-on-year rate of 15.91 percent in the third quarter of 2018, from a 6.08 percent positive growth rate for the previous quarter.

According to FNB's published figures the large Residential Mortgage Loans subcomponent slowed to 3.01 percent in the third quarter of 2018, from a positive 7.45 percent year-on-year growth for the second quarter. 

The Commercial Mortgage Loans segment subsided more significantly, from +3.17 percent in the second quarter to minus 32.02 percent in the third quarter of 2018.

FNB’s figures show a slowdown in all three areas. The largest decline by application type was a 28.12 percent reduction in new mortgages granted for construction purposes, indicating that building space completions will be weak for 2019. New mortgages granted on existing buildings declined by 14.38 percent. Mortgage loans granted for vacant land declined by a lesser 11.4 percent year on year in the third quarter of 2018.

The growth of new mortgages paid out dropped in line with the decline in new mortgages granted. FNB reports that this figure declined to minus 7.25 percent in the third quarter of 2018, from +4.38 percent in the prior quarter. With fewer sales happening, the value of capital repayments in the third quarter of 2018 remained low at +1.49 percent.

Therefore the forecast for 2019, based on the most recently published figures, is that mortgage lending is expected to start slow off a low base, reflecting the direction of the SARB leading economic indicator. Recovery in mortgage lending as the year progresses will depend on real economic growth. 

This has been estimated to be 0.7 percent for 2018 but improving to a predicted 1.4 percent for 2019. Sentiment is likely to play a significant role this year, given the uncertainty currently prevailing within the political landscape.

BUSINESS REPORT ONLINE