The market really needs an interest rate cut, say property professionals

GROWTH in the property market is in danger of stagnating wit h o u t a n i n t e r e s t r a t e decrease or other deliberate intervention.

That’s the word from Rudi Botha, chief executive of mortgage originator BetterBond, who says that although overall market activity has increased over the past 12 months, expansion has been limited because the number of new entrants has been dropping steadily.

“Our statistics clearly show t h a t most o f t h e c u r r e n t demand for properties and new mortgage finance is being generated by existing home owners who have decided to move or to buy additional properties. Something needs to be done to stimulate first-time buying and bring more ‘new blood’ into the market.”

The BetterBond statistics represent 25 percent of all bonds registered in the Deeds Office and cover home loan applications made to all the major banks. They show that in the 12 months to the end of May, home loan applications by first-time buyers accounted for 37.5 percent of the total number of applications, compared to 40.3 percent in the previous 12 months.

Botha says the declining trend has speeded up in recent months, with first-time buyer applications accounting for only 33 percent of the total in the past three months com-

The average first- time buyer house price increased from R598 000 in April 2012 to R685 000 this year – a year-onyear jump of 14.5 percent.

The percentage of 100 percent home loans being granted by the banks fell from 38.5 percent of applications in April 2012 to 34.9 percent in April.

The average percentage of the home purchase price that first-time buyers are required to pay as a deposit rose from 10.7 percent in April 2012 to 14.3 percent in April this year.

“These factors have clearly made home ownership less affordable for first-time buyers, and when you add the rising costs of household essentials such as food, transport and utilities into the equation, it is really not surprising that their numbers are dropping.

“Essentially, they need to be able t o s ave a s ubstantial deposit, and to do that they need to be able to lower their household debt levels. But given the fact that wage increases are just about keeping up with inflation, this is unlikely to happen unless interest rates are dropped even further.

“Such a move would also stimulate economic growth and help to create new jobs, which would of course also be a positive move with regard to expanding the property market,” says Botha.

I t i s e x p e c t e d t hat t he Reserve Bank monetary policy committee will keep interest rates at current levels, and looking at the state of the economy – with its low rand and higher inflation rate – this course is almost certainly the wisest to follow.

The property sector would nevertheless welcome another interest rate cut, says Bill Rawson, chairman of the Rawson Property Group.

“We have got ourselves into a predicament where the wisdom of ownership is understood by a wider section of the population than ever before. But the means to become property owners – mortgage bond loans – are scarce in relation to the demand for them. The challenge facing most buyers is to meet the in awarding bonds. It is therefore understandable that banks should favour the clients with whom they have established relationships and from whom they can make money in other ways, apart from bonds.

“Nevertheless, the property sector is still inclined to think that the call for home ownership is so strong that there must be other ways of meeting the need without incurring big risks.

“Perhaps it is time for the banks, the property sector and the state to get together to discuss this matter. The feeling in this sector remains that all the possible solutions to the current impasse have not been fully explored,” says Rawson.