Experts welcome unchanged repo rate

Gives home owners some respite as economic, housing market outlook remains weak

AGENCY bosses have welcomed the decision made by the South African Reserve Bank to keep the interest rates unchanged, with the repo rate staying at 7 percent and the prime lending rate at 10.5 percent.

Chairman of the Seeff property group Samuel Seeff says the decision by the Monetary Policy Committee of the Reserve Bank to leave the repo rate unchanged is most welcome in a climate where the economic and housing market outlook remains weak. “Save for any major dilemma, it also now seems likely that we will see the year out without any further interest rate hikes.

“The decision was expected by the market given that the CPI (Consumer Price Index) has remained fairly stable, although still at the upper tar- get range, while the currency has regained some of its losses.”

This good news follows the unexpected announcement earlier this month that the GDP in the second quarter of 2016 grew by a very encouraging 3.3 percent, says Seeff. “The change in local government in key metros has also been a massive positive injection for the country and, if the DA starts to deliver, it will benefit everybody.”

This is now the third successive meeting that the rate has stayed put and, Seeff says this breather is good news for homeowners who can now benefit from a rate saving a little longer. The flat rate combined with the slower price growth also makes for positive buying conditions.

“We don’t foresee anything in the short- term that will bring prices down any further, so it is a good time to buy. The banks are still lending and there is still time for buyers to get on to the property ladder, but caution is now the order of the day,” says Seeff.

“The economic outlook remains weak, a downgrade in December still looms and, the property market has begun its inevitable slowdown.”

Welcoming the decision by the MPC to again hold the repo rate steady, Dr Andrew Golding, chief executive of the Pam Golding Property group, says South Africa’s housing market continues to demonstrate maturity and ongoing resilience. “The fact that interest rates have levelled off and remained stable following these last two MPC meetings sends a positive message to home buyers and the residential property market in general.

“Following the recent successful elections this is a further confidence boost for our economy and for those with existing mortgages or seeking finance for residential property acquisitions,” says Golding.

Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, hopes the Reserve Bank’s hiking cycle has come to an end for the time being and consumers can use this window to sort out their financial affairs.

“There are about 18 million credit users in SA, and about 50 percent of them have impaired credit ratings due to high levels of debt. An increase in the interest rate would place further financial pressure on consumers who are already strapped for cash,” says Goslett.

Over the last few years the prime lending rate has increased by 2 percent, which has had a marked impact on homeowners and prospective buyers. Homeowners who bought property for R1 million at the end of 2014 with bonds linked to prime, are now paying R1 306 more for their home than when they applied for finance.

According to household and property sector strategist at FNB, John Loos, from the end of 2013 until June this year, the cumulative increase in the bond instalment on the average priced home has increased by 42.1 percent.

Goslett says the MPC’s decision to keep the rates unchanged is the right choice for the property market and the greater economy.

“An interest rate hike would dampen consumer sentiment and further slow down the property market. This year has been tough for consumers who have already had to absorb two interest rate hikes, along with an increased cost of living. Though the housing market still reflects an ongoing demand, the effects of the slower economy and higher financial demands on consumers have been felt in the property sector,” says Goslett.

He says affordability will continue to be a driving force and a rate hike would negatively affect that.

“Consumers who can reduce their household debt-toincome levels have an increased chance of showing the necessary affordability levels to buy a home. It may be difficult to adjust to a more restrictive financial plan at first, but it will bring them closer to owning a home,” Goslett says.

“The holding of the repo rate by the South African Reserve Bank, gives the growth in Cape property prices so far this year, a good chance to consolidate,” says Mike Greeff, chief executive of Greeff Christie’s International Real Estate.

“Although banks are granting bonds, criteria are still tough to avoid irresponsible lending and consumers are feeling the pinch, but the figures indicate that investors continue to place their confidence in Cape property,” says Greeff.

“The unchanged repo rate is welcomed by the property industry and those repaying home loans will benefit in the short term, but hikes may well be on the horizon and should be planned for.”