‘Gift to struggling homeowners’
Reduction marks the fourth drop in the prime interest rate this year – and brings the repo rate to 3.75%
IN AN ailing economy and a real estate market in lockdown until level 2, the Monetary Policy Committee’s lowering of the interest rate by 50 basis points has been lauded as a “gift to struggling homeowners”.
It was also an incentive for firsttime home buyers to step on to the property ladder. However, real estate agency experts say until the industry is fully operational again, buying will remain stifled as consumers will have to sign on the dotted line without viewing in real life their property purchases.
This recent reduction marks the fourth drop in the prime interest rate this year – it brings the repo rate to 3.75% and leaves the prime lending rate at 7.25%.
In practical terms from June 1, the minimum monthly instalment on a R1 million bond will be about R1 747 lower than it was in January, according to the Property Hotline.
The drop could also tip forever-renters into becoming homeowners with rates at 50-year lows, says Carl Coetzee, BetterBond chief executive.
David Sedgwick of Horizon Capital Residential agrees it provides stimulus to the market and results in increased affordability and improved consumer confidence.
However, while welcoming the move, regional director and chief executive of Re/Max of Southern Africa, believes those who do have the means to buy will need to be willing to purchase without viewing a property, which they will only be able to do if current lockdown restrictions are amended.
He believes thus that “interest rate cuts will do little more than help existing homeowners keep up with their bond repayments”.
Samuel Seeff, chairperson of the Seeff Property Group, also welcomed the move but says while there is interest from buyers, “the longer the lockdown lasts, the more the challenges are piling up for the economy and property market”.
“While many support structures of the market such as the deeds offices, conveyancers and the banks are becoming operational, buyers are extremely frustrated with the level 4 restrictions,” he says.
Mike Greeff, chief executive of Greeff Christie’s International Real Estate says the rate cut is a welcomed relief for all, but “it is hardly shocking given the mounting toll Covid-19 is having on the economy”.
With inflation still at the lower end of the 3% to 6% target band, Andrew Golding, chief executive of the Pam Golding Property Group, says it is hoped that the current low interest rates will help bolster the economy and provide prospective home buyers and investors with an incentive to make property buying decisions. These include first-time buyers.
FNB’s chief executive, Jacques Celliers, says the rate cut is another indication of the SARB’s commitment to protect the economy and help credit active customers to reduce debt servicing costs.
THE SA Reserve Bank (SARB) yesterday slashed the country’s growth forecast further to -7 percent this year from the -6.1 percent forecast last month.
Reserve Bank governor Lesetja Kganyago said the Covid-19 pandemic would weigh on the country’s economic prospects for a while, with the gross domestic product (GDP) contracting deeper than expected.
Kganyago said even the easing of the lockdown regulations imposed in March would not be sustainable in supporting growth in the foreseeable future.
“Even as the lockdown is relaxed in coming months, for the year as a whole, investment, exports and imports are expected to decline sharply,” Kganyago said. “Job losses are also expected to be widespread.”
Kganyago said getting back to pre-pandemic activity levels would take time, with the GDP expected to grow by 3.8 percent next year and 2.9 percent in 2022.
North West University Business School’s Professor Raymond Parsons said the economy might contract even further than the SARB forecast as businesses were facing collapse.
“This forecast may still be too optimistic, and GDP growth may be as low as -10 to -12 percent, with widespread business failures and rapidly rising unemployment,” Parsons said.
Yesterday, SARB’s Monetary Policy Committee lowered the lending rate by 50 basis points to 3.75 percent in a bid to free up more capital for households impacted by the pandemic.
This is the fourth interest rate cut this year as the SARB tries to relax monetary policy by providing financial relief due to the economic downturn.
SARB also eased regulatory requirements on banks to ensure adequate liquidity in domestic markets and to free up more capital for lending.
Kganyago said monetary policy could ease financial conditions and improve the resilience of households and firms to the economic implications of Covid-19.
“Monetary policy, however, cannot on its own improve the potential growth rate of the economy or reduce fiscal risks,” he said.
“These should be addressed by implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation.”
Kganyago said the implied path of policy rates over the forecast period indicated two repo rate cuts of 25 basis points in the next two quarters.
Old Mutual economist Johann Els said the SARB missed an opportunity to cut rates by 100 basis points. “In addition to hoping to see a more significant rate cut, the SARB should also have started quantitative easing as in the US by pre-announcing its size and duration,” Els said. The rand reacted positively, strengthening 0.28 percent to the dollar to R17.67, 0.54 percent to the pound and 0.39 percent to the euro by 5pm.
The JSE All Share Index, however, retreated 2.15 percent to 51 022.76 points and the Top40 Index 2.37 percent to 42 232.46 points.
FXTM’s Jameel Ahmad said SARB’s had shown that it had scope to continue easing interest rates in light of difficult economic conditions was a positive sign.