It is essential to know about bond finance

Banks have taken time to recover from the losses incurred by the market collapse – reducing their default book from 12 to 13% in 2009 to below 5% today. As a result bond finance has become easier. In the first half of the year banks have lent R12 billion worth of mortgages – more than any other category of private-sector lending.

Brisk sales have led to a shortage of stock and a situation where buyers are chasing sellers. And, surprisingly, this situation has heightened during our winter, when residential property sales are normally sluggish.

Will this situation last? The answer to the question of sustainability lies, to a great extent, in the socio-economic patterns which have developed. Demographics have changed. Black economic advancement has helped create a new, relatively wealthy middle class.

According to the Unilever Institute of Strategic Marketing, the number of people making up South Africa’s black middle class had last year grown to 4,2 million and enjoys a combined spending power of more than R400 billion a year. This is substantially more than the R320 billion attributed to the white middle class.

Soula Proxenos, MD of International Housing Solutions, a global housing investor, avers that this meteoric growth will rise to even higher levels this year. Moreover, Efficient Group economist Merina Willemse comments, “Within the group we call the (black) middle class, there is a small group that maintains a very high standard
of living.”

Over the past decade public service employment grew by 22%. According to Stats SA, there are close to one and a half million people employed in the national and provincial governments with a further quarter of a million working for local governments. The public service wage bill accounts for at least a third of all government spending. Of course, the private sector has also played its part in the creation of wealth. Young educated black people hold down top grade jobs in business, in sectors such as finance, insurance, law, mining, medicine and many varied industries.

SMEs have burgeoned, helping to create a new, successful body of entrepreneurs. The earning power of the black middle class has also brought about another factor which impacts on their spending power – access to credit. This alone has had a major impact on the growth in the residential property market.

This has helped create yet another phenomenon – the rapid spread of urbanisation, and this is closely linked to the demand for homes which in turn has led to the current shortage of stock the industry is facing. According to the Institute of Race Relations, two thirds of South Africa’s population now live in urban areas. The most rapid growth has taken place in smaller cities. This urbanisation helps to swell the growth we are currently seeing in the residential property market. These patterns are set to continue and in doing so will surely underpin its sustainability.