Call for a de­lay in repo rate hikes

The de­ci­sion to leave the rate un­changed is good news for both home­own­ers and buy­ers

Weekend Argus (Saturday Edition) - - PROPERTY -

PROP­ERTY pro­fes­sion­als agree that the de­ci­sion of the Mon­e­tary Pol­icy Com­mit­tee of the South African Re­serve Bank to re­tain the repo rate at 7 per­cent (base home loan rate at 10.5 per­cent) for the sec­ond suc­ces­sive meet­ing, is the right move for the econ­omy and prop­erty mar­ket.

Se­eff chair­man, Sa­muel Se­eff says that while the lat­est in­fla­tion data showed a slight up­ward trend – up from 6.1 per­cent in May to 6.25 per­cent – there is no com­pelling case for a fur­ther rate hike right now.

“An up­ward rate ad­just­ment would add to the al­ready neg­a­tive eco­nomic sen­ti­ment and will most cer­tainly serve as a damp­ener on the prop­erty mar­ket. Con­sumers are al­ready bur­dened with ris­ing prices and we are not see­ing any over­spend­ing, so there is no real rea­son for a rate hike. Sta­bil­ity and a pos­i­tive out­look are now needed for the econ­omy and coun­try,” says Se­eff.

“Cash- strapped home­own­ers with mort­gages, who are faced with in­ex­orably ris­ing con­sumer costs across the board, will be re­lieved at the MPC’s de­ci­sion to keep the repo rate steady,” says Dr An­drew Gold­ing, CE of the Pam Gold­ing Prop- erty group.

“Against the back­drop of a sharp spike in global po­lit­i­cal and eco­nomic un­cer­tainty, in­clud­ing fall­out from Brexit, SA’s out­look is en­cour­ag­ing by com­par­i­son. Bloomberg re­cently re­ported an in­flow of in­vest­ment of a record R85.7 bil­lion in the coun­try’s stocks and govern­ment bonds in June – a trend which has con­tin­ued in July.”

Ac­cord­ing to Adrian Goslett, re­gional direc­tor and chief ex­ec­u­tive of RE/MAX of South­ern Africa, the sta­ble repo is good news as an in­crease at this stage would neg­a­tively af­fect the res­i­den­tial hous­ing mar­kets with con­sumers al­ready fac­ing in­creas­ing fi­nan­cial strain with high debt lev­els and the es­ca­lat­ing cost of liv­ing.

“With slow eco­nomic growth and in­fla­tion al­ready plac­ing fi­nan­cial strain on con­sumers, an in­ter­est rate hike would add to the pres­sure and ad­versely af­fect con­sumer sen­ti­ment to­wards the prop­erty mar­ket. There are al­ready many con­sumers who want to buy prop­erty, but don’t meet the nec­es­sary qual­i­fy­ing cri­te­ria. An in­ter­est rate hike would fur­ther widen the gap between repo rate for the next three months”, says Swain.

“Data shows that in­fla­tion has slowed from 7 per­cent in Fe­bru­ary to 6.1 per­cent in May and, while this is still out of the SARB’s 3 to 6 per­cent tar­get range, it is mov­ing in the right di­rec­tion.

“Although we agree with most econ­o­mists that the MPC will likely hike the rate once more this year as it con­tin­ues to at­tempt to curb in­fla­tion, I be­lieve that even a fur­ther in­crease of 25 ba­sis points later this year will fur­ther place more strain on home own­ers bat­tling to keep up with ris­ing costs. It would be ben­e­fi­cial to the econ­omy in gen­eral, and to con­sumers in par­tic­u­lar for the SARB to de­lay any fur­ther hikes this year,” says Swain.

“The real es­tate in­dus­try breathes a sigh of re­lief ev­ery time the SARB de­cides to leave the repo rate un­changed,” says Mike Gre­eff, chief ex­ec­u­tive of Gre­eff Prop­er­ties, Christie’s In­ter­na­tional Real Es­tate.

“We do how­ever re­main mind­ful that the cost of food and other es­sen­tials is con­tin­u­ally ris­ing, and this is de­creas­ing the dis­pos­able in­come of the av­er­age house­holder. Par­tic­u­larly sober­ing is that the Re­serve Bank es­ti­mates that the cur­rent rate of food price in­fla­tion is likely to dou­ble from its cur­rent 5.9 per­cent recorded in De­cem­ber 2015, to 11 per­cent in 2016.

“This will re­duce the num­ber of qual­i­fied buy­ers in the lower to mid­dle-in­come sec­tor. The re­sult of this is that the rate of growth in house prices in the more af­ford­able cat­e­gory is start­ing to slow down,” says Gre­eff.

“Sell­ers are be­com­ing aware that re­al­is­ti­cally priced homes will sell faster, and re­main sold, as buy­ers are able to se­cure fi­nance. Ac­cord­ing to Shaun Rade­meyer, chief ex­ec­u­tive of Bet­terLife Home Loans, th­ese qual­i­fied buy­ers are also plac­ing larger de­posits on their home pur­chases, pos­si­bly due to the favourable in­ter­est rates they re­ceive when do­ing so.”

Gre­eff says that this trend is largely true of low to mid priced homes where fi­nance is in­vari­ably re­quired, par­tic­u­larly for first time home­buy­ers and those buy­ing a home as a pri­mary res­i­dence. In­vestors look­ing for prop­er­ties to rent out or those buy­ing lux­ury prop­er­ties of­ten pay cash and their of­fers to pur­chase are gen­er­ally less af­fected by the in­ter­est rate in­crease.

The MPC’s de­ci­sion to leave the repo rate un­changed is good news for home­own­ers and buy­ers, says Rade­meyer.

“It means that the monthly re­pay­ment on a home loan of R800 000 ob­tained at an in­ter­est rate of 10.5 per­cent will re­main at just un­der R8 000 – and that will give ex­ist­ing home­own­ers some com­fort.

“How­ever, econ­o­mists say the most press­ing is­sue for the MPC at the mo­ment is low eco­nomic growth and the real dan­ger that SA could tip into re­ces­sion be­fore the end of the year.

“In­fla­tion is run­ning at slightly above the MPC’s 6 per­cent ceil­ing. With growth now pro­jected to hit 0 per­cent in 2016, unem­ploy­ment on the rise and a rat­ings down­grade quite pos­si­ble at the end of the year, an in­ter­est rate in­crease to try to re­duce in­fla­tion by curb­ing con­sumer spend­ing at this stage would not have been wise.”

What is more, he says, most SA house­holds are not ac­tu­ally spend­ing ex­ces­sively. Rather, they are strug­gling to make ends meet as a re­sult of the high food prices in­duced by the drought, elec­tric­ity and other tar­iff in­creases this year, and higher debt re­pay­ments as a re­sult of the two in­ter­est rate in­creases im­posed ear­lier this year.

“The sta­ble repo rate also means there will be no in­crease for now in car in­stal­ments, credit and store card re­pay­ments or other debt com­mit­ments, which will give prospec­tive buy­ers a lit­tle more time to qual­ify for home loans at their cur­rent in­come lev­els,” he says.

“And even ten­ants will ben­e­fit be­cause their land­lords will now not need to in­crease rentals to cover their own higher bond re­pay­ments.”

How­ever, Rade­meyer cau­tions, the banks can be ex­pected to con­tinue to fol­low very strict credit grant­ing cri­te­ria, so prospec­tive buy­ers should be sure to ap­ply for their loans through a rep­utable mort­gage orig­i­na­tor, which is pre­pared to mo­ti­vate and care­take in­di­vid­ual ap­pli­ca­tions, and can ad­vise them as to the most suit­able home loan op­tions.

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