The paradoxical effect of the National Credit Act on the residential property market in South Africa.
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Date
2009
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Abstract
Property around the world is regarded as a pillar of wealth creation. South Africa is no
exception, being a capitalist society with residential property by large forming a base of
individual wealth, as an investment class.
A new set of legislation which was promulgated in June 2007 and which promotes and
advances the social and economic welfare of South Africans, by advocating a fair,
transparent, competitive, sustainable, responsible, efficient, effective and accessible credit
market industry thereby ultimately protecting the consumer. This new legislation, the
National Credit Act 34 of 2005 replaced the Usury Act 73 of 1968 and the Credit
Agreements Act 75 of 1980.
The effects of this legislation ricocheted into the South African economy generating
conflicting outcomes. The purpose of this research investigated the paradoxical effect of
the National Credit Act on the South Africa Residential Property Market.
The dissertation first carried out a thorough review of the literature of the South African
Legislation pertaining to the property market post and prior to the promulgation of the
National Credit Act, South African Residential Property Market, South African
Residential Rental Market and South African Building and Construction Industry.
The study sought to validate the paradoxical effect of the legislation by analysing
secondary data to investigate the contribution and correlation of mortgage loan advances,
residential rental market growth and residential construction activity.
The analyses revealed a strong direct correlation between the implementation of the
National Credit Act and mortgage loan advances; residential rental growth and the
performance of the residential construction industry, respectively. The data analysis from
the questionnaires carried out on six residential property developers further reiterated the
strong correlation as illustrated by the secondary data analyses.
The main findings of this study revealed that the implementation of this legislation
resulted in a paradoxical effect on the South African property market. Home ownership
decreased, while rentals sky-rocketed, forcing households to accede to higher rentals
which are not governed by the Act. Furthermore, confidence as well as job creation in the
residential construction industry slumped to an all time low, resulting in job losses and
fewer homes being built.
The research therefore concluded that the decline in the home ownership market and the
consequential growth in the residential rental market is a result of the implementation of
the National Credit Act and substantiates the paradoxical effect of the Act.
Description
Thesis (M.B.A.)-University of KwaZulu-Natal, Westville, 2009.
Keywords
Property--Law and legislation--South Africa., Theses--Business administration.