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The steady rise in new residential mortgage loans granted is expected to continue until at least mid-2010, whereafter one may see some flattening out in the level as the positive impact of the 2009 interest rate cuts wears off, according to FNB Home Loans Property Strategist John Loos.

Loos says this rise in grants is starting to spill over into an improving payouts situation with something of a lag.

"Noticeable increase in building loans is only anticipated in the second half of 2010, once the decline in oversupply of existing properties on the market makes new developments viable on a larger scale.

"However, in a generally more conservative environment compared with a few years ago, capital repayments growth looks set to outstrip new loan growth for a while, and this is expected to translate into a decline in total value of outstanding mortgage loans over the year of 2010, to the tune of around -5% y/y at next year's end," Loos says.

He adds that after a lengthy spell of non-stop y/y decline spanning beck to June 2007, the month that the National Credit Act (NCA) was implemented, the value of new residential mortgage loans granted is steadily nearing a return to positive y/y growth.

In September 2009, the rate of y/y decline had been reduced to -13.8%, and while this still appears to be significant decline, it is significantly better than the -27,5% just one month before, and hugely better than the -62,2% rate of decline as recently as April.

On a month-on-month basis, broad growth has been in progress since early-2009.

For the third quarter as a whole, the y/y decline was -22,2%, which had more than halved on the -49,6% of the previous quarter, while the quarter-on-quarter growth rate had grown at an impressive rate of +30,3%.

"The SARB numbers are beginning to show more concrete confirmation of the increased volumes that we have been feeling since earlier in the year, with September's R18,8bn being the highest value of residential grants this year, and more than double that of January. While improving, though, the value remains less than half of the all-time high of R39,5bn reached in May 2007.

"The noticeable improvement in value of loans granted since the beginning of the year reflects the positive impact of 5 percentage points' worth of interest rate cuts since late-2008, banks responding to better environment with some relaxation in lending criteria, and a mildly improving economic growth performance."

In recent years, the trend in commercial property loans granted has also taken on a similar shape over the past two years or so, having shown negative growth since earlier back in 2006, reaching an extreme rate of y/y of -86.9% in December 2008.

"Much of this weakness may reflect residential development finance, but the commercial property sector has probably also played a major role, with the returns of the major 3 sub-sectors of commercial property, namely retail, industrial and office space all showing significant deteriorations in performance from 2008, as the recession started to bite.

"Since the beginning of 2009, however, the y/y rate of decline for commercial loans granted has diminished steadily to a mere -11,6% in September, while over the third quarter its quarter-on-quarter growth rate had turned slightly positive to the tune of +5,4%."


Courtesy of I-Net Bridge