More income, less debt is good news for real estate

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There’s good news for the world real estate market in the latest Global Wealth Report from German insurance group Allianz, which shows that the financial assets of private households in more than 50 countries have grown by almost 10% in the past year – the highest rate of growth since 2003.

What is more, the report says, this means that almost 500m people worldwide have entered the middle income category since 2000 – and are “managing to participate in global prosperity” rather than suffering the deprivations suggested by the latest global growth forecasts released by the World Bank.

And alongside the growth of assets, Allianz notes, there was also a growth  of around at 3,6% in household debt,  including mortgage debt, which shows that more homes are being bought as people’s financial situation improves.

Even more encouraging is the fact that the global debt ratio, that is personal liabilities measured as a percentage of nominal economic output, has fallen a total of 6,4 percentage points since 2009, to a current 65,1%.This means that consumers generally are in a better position to withstand financial shocks such as an increase in interest rates or a sudden fuel price hike – and thus less likely to lose the home they have bought.

But what is the situation in SA? Well, we know that more than 4m people have joined the “middle class” here in the past 20 years, and the latest figures from FNB suggest that the Household Debt-to-Disposable Income Ratio, which has dropped from 83% in 2009 to 73,5% currently, could go below 70% in the foreseeable future.

FNB Household and Property Sector Strategist John Loos explains that the overall rate of credit growth – particularly when it comes to unsecured loans – is slowing and  dropped to 3,64% in August this year, compared to 4,1% in July and a peak of 10,4% in November 2012.

At the same time, the household disposable income growth rate is heading for 7%, which together with lower debt is steadily improving many consumers’ ability to afford a home purchase. This is reflected in the fact that total mortgage loan lending is now growing at 3,46% a year, while other types of lending decline.

This is very encouraging for the local real estate industry, and bodes well for the continued slow recovery of the market, even if there are more interest rate increases next year.

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