South Africa’s retail boom is over for now and real retail sales could fall for the first time since 1999, with a study saying that consumers have used rising property values to remortgate their homes to repay short-term retail debt.
The study by Avior Research which usually provides such reports to asset managers is the most negative to come from analysts and there is a general opinion that consumers are in for a tough time until at least mid-winter next year.
In a cooling housing market, consumers now have less scope to borrow against housing gains and have had to contend with more expensive debt funding costs as interest rates have climbed, said the report.
The easy credit provided before the stricter lending criteria of the National Credit Act kicked in on June one “may have led to an overindebted consumer, and [we] find early signs of stressed debt”, said the report by Avior.
Real retail sales, which factor in the effects of rising prices, may be lower in the second half of this year. However, it said the forecast was not bleak enough to suggest the nominal, or rand, value of sales would be lower than in the second half of last year.
Avior analyst Shamil Ismail projected nominal growth of 8.7 percent for this year, but said that taking into account first-half growth of 14.5 percent, this “implies growth for the balance of the year could be as low as 2 percent, a significant slowdown from current levels”.
“With expected inflation of 6 percent, it means real retail sales growth may be negative in the second half,” Ismail said.
“If our forecasts materialise, then it could be the lowest growth, both real and nominal, since 1999.”
Avior based its view that consumers were borrowing against housing equity to pay off retail debts on the fact that housing bonds experienced the most significant growth of the various debt types.
Home loans increased their share of total debt from 49.7 percent in March 2001 to 56.7 percent in June this year.
Ismail argued that with climbing fuel and food costs, consumers might find it increasingly difficult to fund debt servicing costs.
Further perturbing evidence about sales was the statement last week by retailer New Clicks that trading since August had been tough.
Durable goods retailers, such as electrical appliance sellers, are hard hit by tough borrowing conditions, but sellers of fast-moving goods, such as the company’s core Clicks chain, generally hold up better, making the statement all the more worrying.
Nedcor Securities retail analyst Syd Vianello agreed there could be a retail sales decline in real terms, but did not believe it would be as bleak as Avior suggested.
“I do not know how bad it is going to get, but I believe it is going to get worse before it gets better,” said Vianello.
