South Africans are getting themselves into debt at a terrific rate
by Nick van der Leek
Most of the debt we’re getting into, is not to finance consumer spending, but involves the paying off of mortgages. In January alone, South Africans owed R580 million to banks after making loans last year totaling R141 000 000 000. Over the last year, house buyers took out loans for R102 billion (R102 thousand million) and owed banks a total of R406 billion on home loans. Home loans now make out 70.2% of total debt owed by South Africans, an increase of almost 1% on the previous year.*
The rate at which South Africans are generating debt places tremendous pressure on purchasing price inflation, which stimulates interest rates. Since credit is currently more freely available in South Africa, greater and greater pressure is brought to bear on interest rates, preventing them from going down, and stimulating an increase. An increase in the interest rate makes the debt burden so much greater.
South African house buyers are purchasing properties that were valued at perhaps half current prices only a few years ago. The prices offered need to be carefully compared to the buyer’s actual perception of value. Does it make sense to buy a can of Coke that costs R30, or R50?
One estimate places an individual’s credit at about 65% of disposable income. At present, banks are not reporting any problems with customers unable to meet their obligations.
But people are operating from a psychology of previous investment. The extraordinary stability and strong global growth we’ve experienced, especially since the Asian Financial Crisis in 1997, is guaranteed, or so it seems. Much of this has been predicated on strong growth coming out of China and India. South Africa, like both these countries, is pursuing further growth which is predicated on having enough energy to drive the industrial complex.
Consuming like there is no tomorrow does not guarantee that there will be a viable economic apparatus at the end of the day – especially when such consumption assumes limitless growth, and is built on, is in fact based on currently cheap, but finite fossil fuels.
*Information from the DI900 monthly reports, which banks provide to the Reserve Bank
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