The paradoxical effect of the National Credit Act on the residential property market in South Africa.
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.