Repo rate decision ‘a blow’
‘Economy needed boost’
ALTHOUGH widely expected, the decision by the Monetary Policy Committee meeting to leave the repo rate unchanged will disappoint many, says Dr Andrew Golding, chief executive of the Pam Golding Property Group.
“There are some positive indicators, but it is evident that South Africa’s economy is by no means out of the doldrums, particularly with the outcome of the Eskom tariff decision looming and its effect on inflation. A further boost for the economy would have been most welcome,” says Golding.
“We still hope the interest rate may decrease further during the year. However, the market also wants the banks to be more confident about mortgage lending. There was a small improvement in mortgage lending during the last six months of 2009, but on the whole lending criteria are still strict and banks are lending selectively.
“ De s p i t e t h i s , we e x p e c t t h e results of the reductions in interest rates that were implemented during last year will manifest themselves during this first quarter, which is traditionally an active period for buying and selling of property as many people relocate for business and other purposes. Although we are cautiously optimistic, the housing market is by no means buoyant.”
Golding says the residential market must be viewed in the light of the common view that house prices have stopped falling and consistent though moderate positive growth in house prices is to be expected. He expects that nominal house price increases, taking inflation into account, will be at 6 or 7 percent a year.
Brian Falconer, chief executive of Colliers Residential, believes the property market will have to get by without the stimulus of a series of rate cuts, as it is unlikely to enjoy much interest rate relief during 2010.
“The repo rate has now remained unchanged since August last year, at 7 percent. This leaves the prime rate at 10.5 percent, which is still too high to stimulate the property market,” says Falconer.
“We can understand the Reserve Bank’s reluctance to afford debts t r a p p e d c o n s u me r s a f u r t h e r 50 basis point cut, but it is disap- pointing that our interest rates remain so high.
“There are a few signs of recovery in the property market, notably in increased house prices, but other indicators remain negative. For instance, the total value of building plans passed by larger municipalities decreased by 23.1 percent, or R17.4 billion, in the first 11 months of 2009, as reported by Statistics South Africa. This is a true leading indicator, and it shows that consumer and investor confidence in the property market remains low.
“Of particular concern to us is the fact that the largest decrease in approved business plans was for residential buildings, which fell by 38 percent, or R13.9bn. This is a clear indication that the market will remain sluggish during 2010 with-
‘This leading indicator shows that consumer and investor confidence in the property market is low’
out the external stimulus a rate cut would have provided.”
Although he understands the decision, he says there was significant favourable data to have led to a different ruling.
“At 5.8 percent, inflation is under control. Specifically, food inflation did not spiral out of control over Christmas. Festive season retail figures were down at their lowest level for a decade, according to preliminary sales data.
“ S o m e c o m m e n t a t o r s h av e viewed this as a consequence of job losses caused by the recession, but another view is that people are concerned about incurring additional debt – credit extension was down 1.59 percent year-on-year in November 2009. This means the Reserve Bank’s policies on credit have succeeded.”