Johann Van Tonder, Economist at Momemtum
The real value of South African households’ net wealth is estimated to have decreased by R425.2 billion in the third quarter of 2021 (Q3 2021). Momentum-Unisa estimates that households’ real net wealth declined from R12 577.8 billion (R12.577 trillion) in Q2 2021 to R12 152.6 billion (R12.152 trillion) in Q3 2021. This decline can in part be attributed to the looting and riots which occurred from 8 July to 18 July 2021 in KwaZulu-Natal and Gauteng.
Analysis by Momentum-Unisa revealed that the bulk of the decrease in household wealth can be attributed to a decline in the real value of households’ assets, especially their investments in pension funds and unit trusts.
The real value of households’ assets is estimated to have been R14 189.8 billion at the end of Q3 2021. This is R442.5 billion (3%) less compared to Q2 2021. However, the real value of household liabilities (mostly outstanding credit) is also estimated to have decreased by R17.2 billion in Q3 2021. The combination of lower asset and outstanding debt values equates to the decrease of R425.2 billion in household wealth.
A breakdown of household assets in its major categories revealed that not all asset components decreased in Q3 2021. Real non-financial assets increased by an estimated R33.3 billion in Q3 2021, mainly because of an increase of R29.3 billion in the real value of residential property.
However, the more volatile (and also largest) component, namely financial assets, decreased by R475.8 billion in Q3 2021 to R9 020.8 billion. Whereas the real value of household deposits increased by R19.4 billion (1.5%) in Q3 2021, the real value of households’ investments in pension funds and other retirement instruments decreased by an estimated R265.6 billion (5.1%) in Q3 2021. In addition, the other investments component declined by R229.6 billion (7.6%).
While many international and local events contributed to the decline in the real value of households’ financial assets, the looting and riots also contributed to this decrease – as it negatively affected share and bond prices. As households’ contributions to pension funds and other investments are among others invested in listed shares, the real value thereof decreased by an estimated R268.3 billion in the period ranging from 7 July to 19 July 2121.
The decrease of R17.2 billion in the real value of households’ outstanding liabilities can be attributed to the other debt category, as the real value of household mortgages remained unchanged at R951.9 billion in Q3 2021. Most of the decline in the other debt category accrued from decreases in the real value of households’ outstanding personal loans and overdraft facilities. It has become much harder for households to access credit as credit providers turned cautious when considering credit applications. For instance, only 36.4% of all loan applications were approved in Q2 2021. This percentage was 55.4% a decade ago.
HOUSEHOLD NET WEALTH
The value of South African households’ assets, liabilities and net wealth were adjusted following the five yearly benchmarking methodology applied by the South African Reserve Bank. This should more accurately reflect the actual value of households’ net wealth. In addition, Momentum-Unisa rebased the actual values using the consumer price index (CPI) of Q4 2016 (previously Q4 2010) to arrive at new real values (also refer to the footnote on page 5). These two adjustments contributed to a large increase in the (actual and) real value of households’ net wealth. For instance, real household net wealth for Q4 2020 were previously estimated at R7 797.4 billion. The new estimate is R11 806.4 billion.
Against this background, Momentum-Unisa estimated the real value of households’ net wealth to have been R12 152.6 billion at the end of Q3 2021 (see table 1). This means that the real value of household net wealth decreased by R425.2 billion (3.4%) in Q3 2021 compared to Q2 2021. The real value is the actual current value excluding consumer price inflation (CPI). If the real value increases, it implies households are richer. However, if the real value decreased, it indicates households are poorer.
Although the real value of household net wealth decreased in Q3 2021, it was R1 048.4 billion (9.4%) higher compared to a year ago (Q3 2020). However, household net wealth was still emerging from the shock of COVID-19 and the “hard lockdown” a year ago.
Table 1: Estimated real value of household net wealth (Q4 2016 prices)
|R’ billion||Household Assets||Household Liabilities||Household Net Wealth|
|Q1 2020||12 023.0||2 066.9||9 956.1|
|Q2 2020||13 391.1||2 048.4||11 342.7|
|Q3 2020||13 148.5||2 044.3||11 104.2|
|Q4 2020||13 873.2||2 066.9||11 806.4|
|Q1 2021||14 738.7||2 060.3||12 678.4|
|Q2 2021||14 632.3||2 054.5||12 577.8|
|Q3 2021||14 189.8||2 037.3||12 152.6|
The decline in the real value of households’ net wealth can be ascribed to an estimated decrease in the real value of household assets, which exceeded the positive effect emanating from a decline in the real value of household liabilities.
The real value of households’ assets is estimated to have been R14 189.8 billion at the end of Q3 2021. This is R442.5 billion (3%) less compared to Q2 2021. However, it is R1 041.3 billion (7.9%) more than a year ago.
Analysis of the different components of household assets indicates that while the non-financial asset component experienced further growth in Q3 2021, the more volatile financial asset component decreased significantly in real terms (see table 2). Real non-financial assets increased by an estimated R33.3 billion in Q3 2021 compared to Q2 2021, mainly because of an increase of R29.3 billion in the real value of residential assets.
In contrast, the real value of financial assets decreased by R475.8 billion in Q3 2021 to R9 020.8 billion. Whereas the real value of household deposits increased by R19.4 billion (1.5%) in Q3 2021, declines were recorded in pension and group life insurance, as well as other financial investments compared to Q2 2021. The real value of households’ pensions and group life insurance decreased by an estimated R265.6 billion (5.1%) in Q3 2021, while the other investments component declined by R229.6 billion (7.6%).
Table 2: Estimated real value of household assets (Q4 2016 prices)
|R’ billion||Residential buildings||Durable goods||Other non-financial assets||Total: Non-financial assets||Deposits||Pension & Group life Insurance||Other Investments||Total: Financial assets||Total assets|
|Q1 2020||2 360.0||867.9||1 887.2||5 115.1||1 202.0||3 837.6||1 868.3||6 907.9||12 023.0|
|Q2 2020||2 308.1||871.8||1 894.1||5 074.0||1 267.1||4 574.4||2 475.6||8 317.1||13 391.1|
|Q3 2020||2 263.2||863.1||1 881.2||5 007.5||1 281.5||4 470.0||2 389.5||8 141.0||13 148.5|
|Q4 2020||2 282.1||869.8||1 907.1||5 059.1||1 292.5||4 823.5||2 698.2||8 814.2||13 873.2|
|Q1 2021||2 330.6||865.7||1 909.3||5 105.7||1 281.4||5 254.1||3 097.5||9 633.0||14 738.7|
|Q2 2021||2 343.7||867.9||1 924.1||5 135.7||1 301.7||5 173.2||3 021.7||9 496.6||14 632.3|
|Q3 2021||2 373.0||864.9||1 931.2||5 169.0||1 321.0||4 907.6||2 792.1||9 020.8||14 189.8|
*Numbers may not add up due to rounding.
The further increase in the real value of deposits in Q3 2021 can be ascribed to the introduction of level 4 lockdown regulations, which prohibited spending on certain goods, the re-introduction of the Social Relief in Distress grant of R350 per month and the partial implementation of civil servants’ salary increases.
Several events contributed to the decline in the real value of households’ pension funds and other investments (such as unit trusts) in Q3 2021. Most of these events, which resulted in lower local share prices and rising bond yields, arose from China and the United States (US). It includes rising geopolitical tensions between China and the US; increasing COVID-19 infections (Delta variant) in China and the US; international supply chain disruptions, which contributed to shortages of supply and stubbornly high inflation in many regions, including Europe, the US and China; shortages of labour in consumer-facing industries in especially the US; indications of monetary tightening in the form of bond purchase tapering by the US central bank; and debt defaults by Evergrande, a large property developer in China, which had a negative knock-on effect in international financial markets.
In addition, South African unique events, such as the looting and riots which occurred from 8 July to 18 July 2021, also contributed to the decline in share prices (the JSE All Share Index declined from 66 806.4 points on 7 July to 64 804.7 points on 19 July). As households’ contributions to pension funds and other investments are, among others, invested in listed shares, the real value thereof decreased by an estimated R268.3 billion in this period. It is estimated the real value of pension funds decreased by R142.7 billion and that of other household investments by R125.6 billion over the “looting period”.
The real value of households’ outstanding liabilities (mostly credit) is estimated at R2 037.3 billion in Q3 2021. It is estimated the real value of household liabilities decreased by R17.2 billion (0.8%) in Q3 2021. It was also R7 billion (0.3%) lower than in Q3 2020 (a year ago).
Analysis of the different components of households’ liabilities indicate that the quarterly decrease can be attributed to the other debt category, as the real value of household mortgages remained unchanged at R951.9 billion in Q3 2021 (see table 3). As mortgages remained at the same level in real terms, it means the actual value increased at the same rate as CPI in Q3 2021.
The other debt category consists of several subcomponents. This includes vehicle loans, personal loans, retailer loans, development loans, micro loans, overdraft facilities, credit card balances and other debts, including outstanding municipal debt. Except for vehicle loans, the other categories had been on a declining trend since Q1 2020. However, the largest declines were recorded in the real values of outstanding overdraft facilities and personal loans.
Table 3: Estimated real value and change in household liabilities (Q4 2016 prices)
|R’ billion||Mortgages||Other debt||Total liabilities|
|Q1 2020||935.8||1 131.1||2 066.9|
|Q2 2020||933.9||1 114.5||2 048.4|
|Q3 2020||931.8||1 112.5||2 044.3|
|Q4 2020||946.5||1 120.4||2 066.9|
|Q1 2021||945.8||1 114.4||2 060.3|
|Q2 2021||951.9||1 102.6||2 054.5|
|Q3 2021||951.9||1 085.4||2 037.3|
*Numbers may not add up due to rounding.
There are several reasons for the declining trend in the real value of household liabilities, despite interest rates being at very low levels. It has become much harder for households to access credit as credit providers turned extremely cautious when considering credit applications. For instance, statistics released by the National Credit Regulator show that only 36.4% of all loan applications were approved in Q2 2021. This percentage was 40% before COVID-19 and the start of the “hard lockdown” and 55.4% a decade ago.
Furthermore, new car price inflation continued to increase, making it less affordable – average new vehicle price inflation for the first nine months of 2021 is 5.1% compared to an average of 3% to 4% in 2018 and 2019. Combined with job losses, this contributed to fewer people being able to afford new cars. This is also reflected in new vehicle sales numbers. Naamsa statistics show an average of about 30 000 new vehicles were sold per month in 2019, but this declined to around 25 000 per month over the first ten months of 2021. This number would in all likelihood been lower had it not been for the low level of interest rates.
OUTLOOK FOR Q4 2021
Early indications are that the real value of household wealth should benefit from a “soft recovery” in the real value of household assets. However, household credit may also increase due to festive season borrowing.
CALCULATING HOUSEHOLD NET WEALTH
The real value of households’ net wealth is calculated by subtracting the real value of their outstanding liabilities (debt) from the real value of their assets. It is not to be confused with the difference between their income and expenditure.
From the earliest of times households gathered assets. For good reason too, as more assets normally translate to a higher wealth, enabling them to, among other things, live better-quality lives. Household assets consist of non-financial (tangible) and financial assets:
- Financial assets comprise the largest portion of household assets – consisting of the combined values of their cash balances; savings in pension and retirement instruments; and other financial investments in for instance shares, bonds and unit trusts.
- Non-financial assets constitute residential buildings, durable goods and other non-financial assets. Durable goods include the value of vehicles and household content, while small-scale holdings, livestock and orchards form part of other non-financial assets.
Household liabilities consist of outstanding credit (including housing-, vehicle- and personal loans, as well as credit and store card debt) and other debts (such as outstanding municipal accounts).
ABOUT THE INDEX
As part of Momentum’s Science of Success campaign, the Household Wealth Index is produced in partnership with Unisa. It aims to provide South Africans with information to assist with their journey to financial success.