Home buyers set to think twice after downgrade
SOUTH Africans, who are pondering buying homes this year may want to reconsider their decision after S&P Global downgraded the country to junk.
On Monday evening, the ratings agency moved outside its planned re-rating of South Africa – initially scheduled for June 2 – and dropped the country to junk following the recent executive changes. Towards the end of the last month, Zuma fired nine ministers, including former Finance Minister Pravin Gordhan.
Adrian Goslett, a regional director and chief executive of RE/MAX of Southern Africa said yesterday, in response to the downgrading, that “homeowners with high debt levels should brace themselves for interest rate increases.
“They will need to focus on reducing their short-term debt as soon as possible and consolidate long-term debt by increasing repayment instalments to eat into the outstanding capital debt faster.”
Vestact analyst Sasha Naryshkine said, with the ratings downgrade, should the cost of borrowing money go up, homes will become more expensive. Chris Gilmour, an investment analyst at Absa Wealth and Investment Management, explained “interest rates will most likely rise, increasing the monthly cost on things like home loan and vehicle finance repayments”.
As a consequence, said Goslett, the increased cost of credit would soften consumers’ desire to purchase large-ticket items such as property and motor vehicles.
Battling “Over the last while, prospective home buyers have already been subjected to interest rate hikes, drought-driven food price inflation and rising electricity tariffs.
“An increased cost of credit would be too much to bear for consumers who are already struggling to deal with the growing cost of living,” said Goslett.
Earlier last month, FNB said the percentage of properties sold below their original purchase price increased to 12 percent in January from 9.8 percent in August last year.
Goslett said junk status meant it would cost more for the government to borrow money which, in turn, would effect the consumer.
“Financial institutions will need to hold more money in reserve, which will make it more difficult to obtain credit, and the credit that is granted will come at a higher cost.
“A marginal mitigating factor is some… financial institutions have already made provision and priced in the effects that a downgrade would have.”