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FNB - South Africa
Survey points to slowdown being across all price/income segments. Luxury Segment seems most sluggish, but Post-World Cup sentiment can support this segment most.

Putting emigration selling and low foreign buying together, it is possible that relative weakness in the Luxury Segment's demand levels in the 1st half of 2010 may be explained by these factors rather than due to financial stress, which doesn't appear to be worse in the Luxury Segment.

Should this be the case, we would expect to see the post-World Cup picture change significantly. While the World Cup would probably not prevent a cyclical downturn in any of the segments, it is possible that we could see a narrowing in the gap between the low level of demand in the Luxury Segment versus that of the other 3 segments. We believe that the Luxury Segment is more sensitive to both negative and positive drivers of national sentiment, compared to lower income echelons where property need drives buying to a greater degree.

Lack of foreign buying early in 2010 and a rise in emigration selling (i.e. a group of sellers who don't buy again) may have hampered the Luxury Segment to a greater degree than others. We now look to the World Cup sentiment boost to turn this relative position around.
FNB Property Segment Performances

FNB - South Africa
The growth rate in household sector credit probably remains slow enough to accommodate further decline in SA's very high household sector debt-to-disposable income ratio (78.4% in Q1 of 2010) for the time being, given some recovery in nominal household sector disposable income growth.

Further decline in the debt-to-disposable income ratio is crucial (necessitating a period of slow household credit growth), prior to the next interest rate hiking cycle, because SA's debt-service ratio (the cost of servicing the household debt burden, interest+capital, as a percentage of disposable income), at an estimated 12.7%, is still too high for comfort. Any unexpected interest rate hiking in the near future would still be painful for a
household sector, given the currently high debt ratio.
FNB Mortgage and Household Credit

FNB - South Africa
The SARB Leading Indicator typically correlates very well with trends in the value of new residential mortgage loans granted.

FNB's recently released Estate Agent survey results for the 2nd quarter pointed to a slowdown in residential demand. It is tough to draw conclusions from that 2nd quarter survey due to the World Cup build-up and abnormally long school holiday possibly having had some "distracting" effect on would-be home buyers.

However, the weakening month-on-month growth trend in the Leading Indicator suggests that there is more than just the World Cup at play, i.e. a general weakening in economic factors.

The May figure lends further support for our view that the 2nd half of 2010 will see a tapering off in residential market strength, especially in the credit-driven part of the market, which in turn will translate into declining year-on-year growth in new residential mortgage grant numbers.
FNB Leading Indicator

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