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SA housing market 'relatively healthy'

May 27 2012 11:05
Elma Kloppers

Johannesburg – As far as repayments on home loans are concerned, South Africans are in a much more favourable position than their foreign peers.

By far most of the 2.6m South Africans with active home loans have personal equity in their properties. This means that the current value of their properties is higher than the outstanding loan.

This is the finding of recent research by Lightstone, which compared current property values with outstanding loan amounts.

This good news for homeowners and lending institutions is in sharp contrast to the picture in foreign property markets. More than a million Americans who took home loans over the past two years now owe more than their home is worth, Reuters recently reported. This amounts to one in every ten home loans taken – an indication that the US housing market is still in deep trouble. Many who bought homes since 2010 and thought they were buying at the bottom of a market which had already fallen heavily were caught unawares by further price declines over large parts of America.

In South Africa property values are generally higher than the outstanding loans.

Lightstone property analyst Hayley Ivins says that to calculate the ratio of the outstanding loan to the value of the property certain assumptions are made based on Deeds Office data since March 2009. It is assumed that a loan of 87.75% of the then market value was granted with a loan term of 20 years and at an interest rate of prime minus half a percentage point.

She says the results at national level are that homeowners’ capital equity averages 38.9% of the value of the property. This means the current value of the property is 38.9% higher than the outstanding loan amount. In Gauteng values are 37.2% above the loan amount and in the Western Cape 36.7% above it.

“From this it appears that loan institutions’ decision to make their lending criteria stricter and demand bigger deposits has benefited homeowners.” Ivins says that bigger deposits make negative homeowner equity less likely by creating a buffer against financial risks.

The fact that interest rates have remained the same since November 2010 means that a larger portion of the monthly home loan instalment pays off the capital debt and not merely the interest.

Jacques du Toit, property analyst at Absa’s home loan division says this is an indication that many households have not taken on additional debt but have continued to pay off their home loans.

“It shows that the (South African) housing market is relatively healthy compared with foreign housing markets.

 - Sake24

For more business news in Afrikaans, go to




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