Property upbeat

Property and especially commercial property should continue to perform well according to FNB property strategist, John Loos. It will be sustained by a mild decline in interest rates and real economic growth of between four and five percent per annum for the next decade. However it could be threatened by an oil price shock which could lead to higher interest rates.

Interest rate hikes alone do not per se damage property performance, as the negative impact could be limited if the driver of inflation and interest rates is also a growth driver.

Meanwhile the Reserve Bank has warned consumers of a potential debt overload if rates suddenly rise. In the Financial Stability Review, the bank said that the benign environment may not continue indefinitely. Household debt as a percentage of disposable income has risen from 62% in 1997 to 65,5% in the fourth quarter last year.

One consequence of this has been in the ability of borrowers to repay mortgage loans. Mortgage loans "overdue" - those that are more than 180 days overdue and either inadequately secured or uncollectible - declined in December, even while mortgage debt continued to rise.

"This trend appears to have subsequently changed as mortgage loans overdue increased by 5,5% in the year to February 2006," the Reserve Bank said, while the ratio of overdue mortgage loans to total mortgage advances increased from 1% in the third quarter of last year to 1,2% in the fourth quarter."

Full articles on business.iafrica.com, businessday.co.za and the March SARB Financial Stability review.