Com­ment on in­ter­est rate an­nounce­ment

Weekend Argus (Saturday Edition) - - PROPERTY -

T H E S O U T H A f r i c a n Re s e r v e Bank’s re­cent an­nounce­ment of a cut in the repo rate of 50 ba­sis points came as a pleas­ant sur­prise, see­ing the econ­omy has al­ready ben­e­fited from a cut of 450 ba­sis points since De­cem­ber last year.

Adrian Goslett, as­sis­tant re­gional di­rec­tor of RE/MAX of South­ern Africa, says it is pos­i­tive to note, ac­cord­ing to TPN Credit Bureau’s rental pay­ment mon­i­tor, that rentals paid on time and in full in the sec­ond quar­ter im­proved by four per­cent. This in­di­cates South African con­sumers are start­ing to man­age cash flow more ef­fec­tively. “Over­all, prop­erty ac­tiv­ity is ex­pected to pick up as more con­sumers can af­ford to buy homes, con­sol­i­date their debt and con­tinue to save. A cut in the in­ter­est rate puts more cash in the hands of po­ten­tial home own­ers and ten­ants.”

Her­schel Jawitz, chief ex­ec­u­tive of Jawitz Prop­er­ties, says: “Given the lat­est eco­nomic data and the en­cour­ag­ing inflation fig­ures, the Re­serve Bank clearly feels there is scope to drop rates and give the econ­omy a fur­ther boost.

“The lat­est cut will con­tinue to take pres­sure off ex­ist­ing home own­ers as monthly re­pay­ments will be lower. This is im­por­tant, as it will con­tinue to slow down the num­ber of re­pos­sessed prop­er­ties and dis­tressed sell­ers, which ob­vi­ously af­fects prop­erty prices.”

Dr An­drew Gold­ing, chief ex­ec­u­tive of the Pam Gold­ing Prop­erty group, says the Mon­e­tary Pol­icy Com­mit­tee’s de­ci­sion to re­duce the repo rate may have been un­ex­pected, but it was a wel­come move and means in­ter­est rates will drop.

“This is a pos­i­tive step for­ward for our econ­omy and will help to b o o s t g row t h . A l t h o u g h S o u t h African eco­nomic con­fi­dence is s l i g h t l y u p, d u e c o n s i d e r a t i o n should be given to the in­fla­tion­ary ef­fects of gov­ern­ment wage set­tle­ments and high food, elec­tric­ity and fuel prices. (But) house­hold debt re­mains high, which makes the re­cent an­nounce­ment all the more rel­e­vant. We hope this is a fur­ther pos­i­tive stim­u­lus to­wards the banks’ re­lax­ation of their very strin­gent lend­ing cri­te­ria.

“Though trad­ing con­di­tions re­main con­strained, there do ap­pear to be glim­mers of light at the end of the tun­nel. The res­i­den­tial prop­erty mar­ket is show­ing in­creas­ing signs of ac­tiv­ity at all lev­els. Even in the mort­gage sec­tor there are stir­rings of life, de­spite the fact that ac­cess to af­ford­able fi­nance re­mains a key ob­sta­cle for home buy­ers.”

Gold­ing says spec­u­la­tors and longer-term in­vestors are re­turn­ing to the mar­ket, there is in­creased at­ten­dance at show days, and sell­ers are ac­cept­ing more re­al­is­tic prices. There is also a sense banks’ re­newed in­ter­est in the lend­ing mar­ket is

‘Though trad­ing con­di­tions re­main con­strained, there do ap­pear to be glim­mers of light at the end of the tun­nel.’

much closer than be­fore, al­though with high loan-to-value ra­tios.

“The top-end sec­tor, with its high per­cent­age of cash buy­ers, con­tin­ues to per­form well. There re­main pock­ets of ac­tiv­ity which be­lie na­tional trends – ar­eas such as Stel­len­bosch and Gra­ham­stown which, with their dis­tinc­tive mi­cro mar­kets, con­tinue to ex­pe­ri­ence strong sup­ply and de­mand.

“Un­for­tu­nately, unit sales have not ma­te­ri­ally im­proved and there is still a great deal of stock for sale.”

The re­cent repo rate cut will pro­vide the prop­erty mar­ket with a lit­tle re­lief, but it is likely to re­main stagnant, says Brian Fal­coner, chief ex­ec­u­tive of Col­liers Res­i­den­tial.

“Given some of the pos­i­tive in­di­ca­tors that have been un­fold­ing dur­ing the year, we would have hoped for more than a 50 ba­sis-point cut – maybe a full 100 ba­sis-points cut,” says Fal­coner. “In­stead, the mar­ket will con­tinue to drift along for at least an­other two months, and pos­si­bly un­til the end of the year.

“The de­ci­sion, the last un­der out- go­ing gover nor Tito Mboweni’s ten­ure, means home own­ers will con­tinue to strug­gle un­der the bur­den of high monthly re­pay­ments, new en­trants will find it dif­fi­cult to ac­quire homes, de­vel­op­ers will strug­gle to get new de­vel­op­ments off the ground and banks will re­main re­luc­tant to ad­vance credit.

“The en­tire cy­cle is slug­gish, and un­less in­ter­est rates con­tinue to ease… the prop­erty mar­ket will re­main in the dol­drums, with neg­a­tive con­se­quences for all in­volved.”

The repo rate has been cut by a full 500 ba­sis points since De­cem­ber, and bond­hold­ers have en­joyed thou­sands of rands a month cut off their monthly re­pay­ments.

Fal­coner says a num­ber of fac­tors con­verged to force the Re­serve Bank’s hand with re­gard to the repo rate and the slight­ness of the cut:

Re l a t i ve l y h i g h i n f l a t i o n , which is com­ing down, ex­cept for stub­born food inflation.

The sharply ris­ing cost of elec­tric­ity and the volatile price of oil, which was back up at $70 a bar­rel at the time the mon­e­tary pol­icy com­mit­tee met.

High wage in­creases across many i n d u s t r i e s , r u n n i n g we l l ahead of the inflation rate.

The equally volatile rand, which in the past three months has swung wildly in a band be­tween R7.50 and R8.80.

The on­go­ing global re­ces­sion, which has caused the South African mar­ket to shed hun­dreds of thou­sands of jobs.

While global in­di­ca­tions are in­creas­ingly pos­i­tive, it will take time for th­ese to work through to South Africa.

“We can but hope for a fur­ther rate cut when next the mon­e­tary pol­icy com­mit­tee meets in Septem­ber,” says Fal­coner.

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