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Cape Town - There are signs of South African consumers "deliberately" becoming more conservative in the residential property market, John Loos, household and property sector strategist at FNB, said on Friday.
Indications are that the household sector has become less confident of the economic future, and by implication of its own future financial situation. It seems mainly due to greater concerns about the global economic slowdown, the commodity price slump, interest rate hiking and heightened political and future policy uncertainty.
Loos pointed out that, at the same time, tougher economic and financial times are more likely to bring about a higher savings rate, despite it being theoretically tougher to save during the tougher times.
There has been a gradual decline in the percentage of home sellers selling in order to upgrade to a better property.
"This is by and large the non-essential side of property trading, which in tougher times can normally be put on hold," explained Loos.
"We have also seen some shift in demand towards the lower end of the residential market, with the higher priced luxury home segment having seen its activity levels slow first of the major segments."
Loos is picking up a greater divergence between real household consumption expenditure growth and real household disposable income growth. It does reflect what he calls some positive progress in returning household consumption to more sustainable levels relative to disposable income levels.
Growth in household sector net wealth, for instance, has slowed from 19.5% year-on-year in the second quarter of 2014 to 3.8% by the first quarter of 2016.
"On the positive side, the sustained economic weakness, over a number of years to date, along with weak consumer expectations of the economic future, looks to be starting to drive an improving trend in savings behaviour. A change is overdue and we expect a return to a positive net savings rate later in 2016 for the first time since 2005," said Loos.
"On the negative side, however, while the household sector is shifting towards a more cautious way of managing its finances, including higher levels of savings, the further dampening effect on consumer spend growth, over and above the dampening effect of slow economic growth, can be a further 'growth negative' for retailers and the economy alike."
He added that, in the longer term, however, a significantly higher savings rate could become “growth positive”, contributing much needed domestic funding for fixed investment.
