Latest news with #FrederickMitchell
IOL News
30-07-2025
- Business
- IOL News
SA sees 5% uptick in credit demand, yet mortgage and fixed asset lending stay subdued
Turning home improvement dreams into reality often comes with an exorbitant price tag, and the necessary funds are not always readily available. Commenting on the Private Sector Credit Extension (PCSE), Frederick Mitchell, an economist at Aluma Capital, said that since the interest rate cuts began in September 2024, overall credit growth has accelerated, with most subcategories showing increases during June. Credit demand increased by 5.0%, aligning with market expectations for the month, in June this year. However, he said mortgage advances and credit for fixed asset purchases remain restrained, despite the ongoing interest rate cuts initiated in September last year. 'Demand for property continues to be sluggish in South Africa, indicating low capital expenditure by households and businesses. High consumer debt levels, stagnant wages, and increasing living costs still constrain recovery in this sector. "Nevertheless, the full benefits of lower interest rates are anticipated to materialise later in 2025, as household disposable incomes improve, driven by positive market sentiment and potential additional rate cuts by the South African Reserve Bank (SARB),' Mitchell said. Aluma said that in June, instalment credit sales grew by 0.8% month-on-month, following a 0.9% increase in May, with an annual growth rate of 6.5%. The financial institution said that over the past two years, consumers have relied more on short-term credit to cope with rising living expenses, shown by a 7.1% increase in other loans and advances, up from 7.0% in May. Mitchell said with inflation remaining favourable, continued rate reductions are expected to further enhance disposable incomes, promoting increased demand for goods and fixed assets in the second quarter of this year and beyond. The latest inflation numbers for June continue to support the possibility of a further interest rate cut by the Reserve Bank this week, says Herschel Jawitz, CEO at Jawitz Properties. He said while upside risks remain, fuel prices are projected to fall marginally in August, and inflation is still sitting at the lower end of the target range. 'The residential property market has started to benefit from the cumulative one percent drop in interest rates since last year, with overall buyer demand improving across all price levels, including among first-time buyers. "With the increase in demand, we are starting to see the first signs of a rebalancing between supply and demand, which in the medium to long term is positive for property prices. In addition, a further rate would help to improve consumer confidence, which bounced back from a three-year low of - 20 to a less pessimistic - 10," Jawitz said.
IOL News
02-07-2025
- Business
- IOL News
Despite 5% rise in credit demand, mortgage advances and fixed asset purchases lag behind
The younger generation values property ownership and sees it as a path to building generational wealth. Since interest rate cuts began in September last year, overall credit growth has gathered momentum, with most subcategories recording increases during May, according to Aluma Capital. Credit demand grew by 5.0% in May, slightly exceeding April's 4.6% and surpassing market expectations of 3.0% according to the Private Sector Credit Extension(PSCE). However, mortgage advances and credit for fixed asset purchases remain subdued, says Frederick Mitchell, chief economist at Aluma. He said that despite a total interest rate reduction of 175 basis points since September last year and an additional 25-basis-point cut on May 29 this year, property demand has been sluggish. 'Elevated consumer debt levels, stagnant wages, and rising living costs have limited a strong recovery. Nonetheless, the full benefits of lower rates are expected to materialise later in 2025 as household disposable incomes improve, supported by positive market sentiment,' Mitchell said. The asset and fund management company said in May, instalment credit sales rose nearly 1% month-on-month, following a 0.3% increase in April, with an annual growth rate of 6.2%. It said over the past two years, consumers have increasingly relied on short-term credit to manage rising living expenses, reflected in a 7.0% increase in other loans and advances, up from 6.6% in April. It added that growth in property and fixed asset purchases remained modest, with mortgage advances growing just 3.5% in May, consistent with April. This subdued activity originates from late 2023, when rising interest rates constrained property demand. However, with recent rate cuts, especially the 25-basis point reduction in May, and further easing anticipated, demand for property and fixed assets is expected to increase as household incomes stabilise and grow. 'With inflation remaining favourable, ongoing rate reductions should further boost disposable incomes, fostering increased demand for goods and fixed assets into the second quarter of 2025 onwards.' Meanwhile, young South Africans who are said to be actively contributing to key sectors of the economy, remained underrepresented in the credit market, according to Experian's latest Consumer Default Index (CDI) for the first quarter of this year. While the CDI for the total market has improved by 14% year-on-year, the report highlights persistent barriers that prevent youth from building financial independence through responsible credit access. The CDI Youth measure, an indication of first-time technical arrears amongst consumers in youth segments, typically under 30-improved significantly over the past year, decreasing from 7.55 in March last year to 5.76 in March 2025 this year. This positive shift in CDI is primarily said to be influenced by a more cautious lending environment, which has led to restricted credit supply.
