Global economic crisis to be felt by developing countries

She said while it was expected that the value of houses in South Africa would decline, the high cost of living was making it difficult for owners to make their monthly bond payments.

Speaking at the International Housing Finance Conference in Sun City on Monday, 29 September 2008, Molewa said what began as a niche problem in the US has now spread dramatically to the rest of the world, and developing countries would be affected.

The sub-prime market fallout began with the US housing bubble bursting last year.

"Delinquencies and foreclosures have climbed sharply, with an estimated two million sub-prime loans likely to default, creating a precipitous decline in housing values in many markets.

"As the ripples move outward, the crisis is now threatening the US with economic recession and setting off worldwide concerns about how the resulting credit crunch and possible US recession will affect growth in countries rich and poor," said Molewa, speaking on behalf of Minister for Housing Lindiwe Sisulu.

According to the figures released by property group Knight Frank in June, global house price inflation continues on its downward trend on the back of sub-prime credit fallout, rising fuel and food prices.

Molewa said in South Africa, a similar trend has been observed; house prices have been cooling off despite a long period of growth experienced over the past five years.

"The cumulative 500 basis points interest rate hikes since June 2006 have caused mortgage repayments to rise by a total of 5% over this period and have contributed to housing becoming less affordable to many households."

She said despite the introduction of the National Credit Act, which is aimed at encouraging responsible growing and discouraging reckless credit granting by credit providers, an erosion of disposable income arising from increasing interest rates, increasing food prices, increasing fuel costs, increasing energy costs and increasing property rates leaves low income households vulnerable in meeting their debts.

Molewa said while the country's regulatory environment is strong and the financial environment can be regarded as resilient to such perceived market failures, as indicated by Knight Frank index which ranked our housing market tenth out of 34 countries, South Africans could still see some level of delinquency and foreclosure.

"We have all witnessed casualties in a number of financial and housing finance institutions such as Bear Stearns, Northern Rocks and others. We have also seen the fall of the World Housing Finance icons, Fannie Mae and Freddie Mac. Their collapse would not only worsen a downturn in the USA but also globally and especially in developing countries," said Molewa.

The International Housing Finance Conference, which opened on Monday, is a platform for global housing industry players to discuss trends, issues, challenges and developments in the business of housing finance.

The four-day conference is expected to discuss issues and trends relevant to South Africa, including examining the impact of housing on economies, world market and populations in the developed and developing worlds.

However, Molewa said, South Africans should not have an impression that everything was doom and gloom, and rather celebrate the achievements made in as far as housing delivery is concerned.

In 2004, a Comprehensive Plan for the Development of Sustainable and Integrated Human Settlements was adopted to accelerate the provision of housing in accordance to international trends.

Over the past 13 years, the housing budget has also shown a significant increase. "In 2008 the budget for the Department of Housing was about R9.9 billion and a large percentage was targeted and providing adequate shelter for residences in informal settlements."

In addition to this, the Financial Services Charter the South African Financial Institutions pledged to inject a capital of R42 billion into affordable and low income housing.

R2 562 billion has also been spent by the department's housing institutions on extending financial assistance to low-income households.

Article published courtesy of BuaNews