Call for a delay in repo rate hikes

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

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.