Housing in Southern Africa February 2016

Housing

Consumer indebtedness

A ccording to TransUnion Credit Bureau, Consumer Credit Index (CCI), the index is based on a 100-point scale, where 50.0 is the break-even level between improve- ment and deterioration of credit health. A number greater than the 50.0 break-even point shows an improvement in credit health. The index comprises of consumer credit borrowing and repayment behaviour, household cash flowand debt servic- ing costs. “Despitewarnings ofworsen- ingmacroeconomic conditions, consumer behaviour does not show signs of falling credit health. This is partly the result of an already heavily indebted household sector choosing to be more cautious, and partly the result ofmore prudent lend- ing standards in thewake of the unsecured lending boom,” said GeoffMiller, Regional President of TransUnion Africa. Miller also cautioned against complacence. “Macroeconomic conditions can take some time to reflect fully in consumer be- haviour. A weaker rand exchange rate raises the cost of livingwhile also compelling the central bank to raise interest rates.” Household cash flow remained roughly steady in the fourth quarter, but, according toMiller, higher prices on imported goods due to randweak- ness is a threat that could plausibly cause the cash flow indicator to turn negative in the first half of 2016.

Consumer credit behaviour remained stable in the fourth quarter of 2015 and neither materially worsened nor improved from the third quarter. Encouragingly, the number of new defaults declined by 5,1% compared to the previous year.

“Since the rapid randweakness inDe- cember 2015, we’re strongly focused on the rand as a potentially big risk factor in 2016”, he added. Household debt service costs increased during the fourth quarter due to slightly

constructed the CCI in collaboration with TransUnion, noted that currency instability was one of the key factors in the interest rate outlook. “The Reserve Bank hiked interest rates by 50 basis points in January 2016,

and more such moves may be in store if the currency does not stabilise soon and begin recovering. Interest rate hikes will cause many of the most financially vulnerable borrowers to default. The key for man- aging this process will be for credit providers to fo- cus on loan quality and for borrowers to be more

prudent than usual.” Facts and Figure In the fourth quarter of 2015 the CCI shows: • 56,4millionconsumeraccountswere measured • 0,95 million of accounts were in ar- rears formore than threemonths • 3,4 million accounts were in arrears for 30 days • R137,7billionvalueofrevolvingcredit measured • Prime overdraft rate in the last quar- ter of 2015was 9.75% ■

higher household indebtedness and higher interest rates. The Reserve Bank raised the benchmark repo rate from 6% to 6.25% in November 2015. But many analysts expect the pace of rate hikes to accelerate in light of a dramatic devaluation in the rand exchange rate which began in December. Russell Lamberti, Chief Strate- gist of ETM Analytics, the firm that

February 2016