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South African households’ real net wealth up R300 billion during the first half of 2019

10 October 2019 Momentum/Unisa

Although it might not feel that way, South African households’ real net wealth increased by R300.4 billion over the first six months of 2019. This dissonance - of actually being wealthier, but not feeling that way – possibly stems from confusing income and wealth. Tough economic times are making it difficult for households to finance their expenses with their income, but their wealth grew because the value of their assets increased more than their outstanding debt. 

According to the Momentum/Unisa Household Net Wealth Index, the purchasing power of households’ net wealth (real net wealth) increased by an estimated R96.1 billion during the second quarter of 2019 (Q2 2019) from Q1 2019, following an increase of R204.3 billion in Q1 2019. Unfortunately, and despite the two quarterly increases, it was still about R50 billion lower than in Q2 2018 (a year ago.)

Households who would have gained most are those with financial assets – such as investments in pension funds and retirement annuities. This is because the real value of financial assets contributed most to the increase in household wealth.

Unfortunately, preliminary indications are that financial assets lost a large share of their increase during Q3 2019 – mostly because of adverse international economic developments.

Household Net Wealth

From the earliest of times, households accumulated assets. Little has changed over time as today, households’ ultimate financial goal is accumulating assets. For good reason, as more assets normally translates into higher net wealth, which will enable them to, among others, improve their own uniquely determined living standards over their lifetime.

The real value of their net wealth is the real value of their assets minus the real value of their liabilities. Their assets mostly consist of the values of their savings in retirement instruments, financial investments and residential properties, while their liabilities comprise their outstanding credit and other debts.

Momentum/Unisa estimates that the real net wealth of households grew by R96.1 billion in Q2 2019 – from R7 109.0 billion at the end of Q1 2019 to R7 205.1 billion at the end of Q2 2019. Over the first half of 2019, the real value of net wealth increased by R300.4 billion. This means their real net wealth increased by 4.4% over the six months since the end of 2018. In contrast, their real disposable income was only 0.8% higher, giving rise to them “not feeling wealthier”.

This growth in households’ real net wealth during Q2 2019 can to a large extent be ascribed to the real value of their assets increasing more than their outstanding liabilities.

When expressed as a percentage of gross household income, household net wealth increased from 274.3% in Q1 2019 to 276.2% in Q2 2019 – but it is still lower than the 281.2% registered in Q2 2018.

Household Assets

The real value of household assets increased by R109.6 billion, or 1.3%, in Q2 2019 (from Q1 2019) to R8 623.8 billion.

This increase can be attributed to a better performance of financial assets, such as growth in the value of pension funds and other investments, while residential asset growth struggled to gain traction. This is corroborated by an analysis of contributions to and the performance of the instruments in which households’ financial assets are invested. The bulk of financial assets are either directly, or indirectly (e.g. pension funds) invested in listed shares, bonds and deposits at banks. Households’ contributions to pension and group life schemes, annuities and official and private pension funds were 2.4% higher in Q2 2019 compared to Q1 2019 in real terms. Households’ assets received a boost via higher returns on these contributions. During Q2 2019, the JSE All Share Index (ALSI) increased by 2.0% in real terms and the All Bond Index (ALBI) by 1.2%. However, residential assets did not perform that well. Although the real value of house prices as measured by the FNB House Price Index was 0.2% higher in Q2 2019 compared to Q1 2019, new residential investment was 7.0% less in real terms compared to Q1 2019.

The better performance of households’ financial assets was predominantly driven by events in the rest of the world. Softer monetary policy in the form of interest rate reductions and more quantitative easing supported international share and bond markets – also in South Africa.

These developments contributed to household assets as a percentage of gross income increasing to 330.6% in Q2 2019, up from 328.5% in Q1 2019 and 321.5% at the end of 2018.

Household Liabilities

The real value of households’ outstanding liabilities increased by R13.6 billion (1.0%) to R1 418.7 billion in Q2 2019 (from Q1 2019).

The rise in household liabilities was driven by increases in the real value of outstanding credit, especially in mortgages, personal loans and credit card debt. Mortgages, which comprises 58.5% of outstanding household credit, increased by 0.6% in Q2 2019 (from Q1 2019). Personal loans, which makes up 14.4% of real outstanding credit was 0.9% higher in real terms, while outstanding credit card debt (7.2% of total outstanding credit) increased by 2.5%.
Outstanding municipal debt owed by households, however, decreased by 2.5% in real terms during Q2 2019. This is mostly due to municipalities writing off debt that is considered not recoverable.
As real household liabilities grew slightly more than their gross income, the ratio of household liabilities to gross income increased from 54.2% in Q1 2019 to 54.4% in Q2 2019.10.04

Outlook for the third quarter of 2019

Preliminary estimates for Q3 2019 point to a decline in the real net wealth of households in Q3 2019. In the same way financial assets contributed to the growth in household net wealth in the first half of 2019, it seems highly likely that it contributed to a decline in net wealth in Q3 2019.

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