SA households lose billions on drop in real investment and property values
An index shows global and local events ‘had a profound negative impact’ on the real value of your pension fund and investments
Despite boosting their retirement savings, South Africans became poorer in the third quarter of 2019 as the real value of their investments and residential properties dropped.
The reason for your decrease in wealth is that the after-inflation value of your household assets exceeded the decline in the after-inflation value of your debts.
According to the latest SA Household Net Wealth Index by Momentum and Unisa, the real net wealth of households declined by an estimated R237bn between the second and third quarters of last year.
The real value of household assets decreased by R240.9bn between the second and third quarters of last year to R381.9bn, despite households increasing their savings in pension funds and retirement annuities, the report states. Over the full-year period to the end of the third quarter of last year, the decline was R133.7bn.
The JSE all share index lost 6.8% and the all bond index dropped 0.3%, but the value of household deposits increased by 1.7% over the quarter. These figures are all after inflation.
The bulk of households’ pension funds, retirement annuities and other investments are invested in shares and bonds and the share and bond price decreases contributed hugely to the decline in the real (after-inflation) value of their financial assets. This is despite the contributions to pension and group life schemes, retirement annuities and pension funds increasing by 5.7% over the quarter compared with the previous one, the report states.
You can blame international events such as the trade war between the US and China, fears of a US economic recession and international terrorist attacks, which the report states “had a profound, negative impact” on the real value of your pension fund and investments.
Domestic events such as Eskom spiraling downwards, state capture and a weak economy also contributed to your loss of wealth overall.
The after-inflation value of residential assets also declined because real house prices remained unchanged between the second and third quarters last year, while new investments in residential property declined at an annual 4.6%. Coupled with depreciation, this contributed to a decline in the real value of the household property values overall.
Domestic factors were the main cause of the decrease in the real value of household property values, including Eskom’s inability to generate enough electricity, which resulted in the economy shrinking by 3.1% over the quarter.
The real gross income of formal-sector workers declined by 0.1% compared to a year ago, which negatively affected the purchasing power of formally employed workers to buy homes.
The index measures how your real wealth fares from one quarter to the next. Your real household net wealth takes into account the current value of all your assets (what you own) and liabilities (what you owe), minus the impact of inflation. Your assets include your savings and investments, financial investments and residential properties, and your liabilities include what you owe on your house, vehicle, personal loans and credit cards.
As far as household debts were concerned, their after-inflation value decreased by R3.9bn between the second and third quarters of 2019, but were still R20.6bn higher than the year before.
Preliminary estimates for the final quarter of last year point to the value of household financial assets recovering and suggests households will end 2019 wealthier when compared with 2018.