Russians buying in South Africa

Foreign purchases estimated at 4% of the market.
Russians boost South Africa's Luxury Real Estate

But after President Vladimir Putin began to tighten restrictions last year on the freedom of the Russian elite to move their capital, Russians may now be motivated to move their assets more permanently overseas.

“There is a sense that [Russian] people want to get their money out [of the country] because of Putin closing down the doors,” said Steward, of the Knight Frank property agency. “That could be a reason why they want to invest here. The Russian market has certainly found London, and I think Cape Town is now being discovered.”

A guide to South Africa's economic bubble and coming crisis

A guide to South Africa's economic bubble and coming crisis

Unsecured loans, or consumer and small business loans that are not backed by assets, are the fastest growing segment of South Africa’s credit market and are essentially the country’s own version of subprime loans. Unsecured loans have grown at a 30 percent annual compounded rate since their introduction in 2007, when the National Credit Act was signed into law. Unsecured lending has become popular with banks because they are able to charge up to 31 annual interest rates, making these riskier loans far more profitable than mortgage and car loans in the low interest rate environment of the past half-decade. The unsecured credit bubble is estimated to have boosted South Africa’s GDP by 219 billion rand or U.S. $20.45 billion from 2009 to mid-2013.

Like U.S. subprime lenders from 2002 to 2006, South Africa’s unsecured lenders target working class borrowers who have limited financial literacy, which has contributed to the country’s growing household and personal debt problem. A 2012/2013 report from the National Credit Regulator showed that South Africa’s 20 million citizens carried an alarming 1.44 trillion rand or U.S. $140 billion worth of personal debt – equivalent to 36.4 percent of the GDP. In addition, household debt now accounts for three-quarters of South Africans’ disposable incomes.

Sadly, they seem to have stopped updating the data behind this widget, but for an illuminating chart, here is the old Clicks and Mortar from the Economist for South Africa.

Interestingly, house prices don't look alarming at relative to average incomes. Since this isn't a graph based on the median, it's possible that income disparity AND a credit bubble are making this chart look rational. South Africa's income disparity is among the highest in the world.

Checking in with South Africa

On the Economist Clicks and Mortar chart snapshot below, you can easily see South Africa. It's that high flying line that dwarfs even Spain for non-linear growth.

House prices - In the doldrums
Still overvalued

Auction Alliance estimates that up to 50000 repossessed and foreclosed homes could hit auction floors and the sheriff’s office over the next year. That’s in addition to the 10000 or so distressed properties currently for sale.

With so many more cash-strapped homeowners expected to dump properties they can no longer afford on the market, prices will no doubt come under pressure. Estate agents say average house prices are already down by an average 15%-20% from pre-2008 highs.

SA is estimated to be overvalued [by The Economist] by an equally hefty 17%.

Very similar tone to Australian analysts. It's different here. It will soft land.

Rode expects house price growth of no more than 2%/annum for at least the next five years. That implies a cumulative real price fall of 15%, assuming an average inflation rate of 5%/annum over the next five years.

The luxury end of the market is meanwhile setting records, a trend that pans out across a range of capitals, including London. Big money is still getting parked from abroad without regard to the broader real estate trends.