South Africans lost a lot of their wealth during the third quarter of 2019, according to the latest Momentum/Unisa Household Net Wealth Index.
It shows that South African households’ real net wealth declined by R237 billion in Q3 2019 compared to Q2 2019, while it was R133.7 billion less than in Q3 2018.
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 combined values of their savings in pension and retirement instruments, financial investments and residential properties, while liabilities comprise their outstanding credit (including housing, vehicle, and personal loans as well as credit card debt) and other debts (such as outstanding municipal accounts).
Trade war, load shedding
Reasons given include the impact of international events like the trade war between the US and China; fears of an economic recession in the US; and terrorism attacks. Locally, factors like Eskom’s inability to generate enough electricity resulted in the economy shrinking by 3.1% in Q3 2019 compared to Q2 2019.
State capture and a weak economy also played a role, with all the above factors contributing to sharp declines in international share prices. The JSE All Share Index lost 6.8% in real terms over the quarter and the real All Bond Index 0.3%, but the real value of household deposits managed an increase of 1.7%.
The decline in the real value of pension funds and retirement annuities overshadowed the increase in household contributions to these instruments.
More pension savings, less wealth
The decline in the real value of household net wealth in SA was almost solely caused by a decrease in the real value of households’ assets – despite households saving more money in pension funds. The decrease was caused by declines in the real values of both financial and residential assets. The real value of residential assets also declined – as real house prices (according to the FNB House Price Index) remained unchanged between Q2 2019 and Q3 2019, while new investments in residential property declined at an annual rate of 4.6%. Coupled with depreciation, this contributed to a decline in the real value of the total stock of household property values.
At the same time, the real value of households’ outstanding debt declined in Q3 2019 compared to Q2 2019, but it was higher compared to the same period a year before.
However, preliminary estimates point to a recovery in the real value of household net wealth in Q4 2019 and it is expected that SA households would have ended 2019 “richer” compared to 2018 – so much so that households would end 2019 richer when compared to 2018.
Outstanding municipal debt owed by households decreased further in real terms between Q2 2019 and Q3 2019. According to the National Treasury, households’ outstanding municipal debt amounted to R111.3 billion in Q3 2019 (equivalent to R70.7 billion in real terms). This is less than the R115 billion (R73.8 billion in real terms) that was outstanding in Q2 2019. This decline is mostly due to municipalities writing off the debt that is considered not recoverable.
Preliminary estimates for Q4 2019 point to a recovery in the value of households’ financial assets.
Coupled with the reasonable performance of household wealth during the first half of 2019, this suggests that households will end 2019 wealthier when compared to 2018.