Repo rate de­ci­sion ‘a blow’

‘Econ­omy needed boost’

Weekend Argus (Saturday Edition) - - PROPERTY -

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.”

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