Cape Town - A steady repo rate - coupled with transfer duty exemption - is good news for first time buyers, Dr Andrew Golding, chief executive of the Pam Golding Property group, said on Thursday in reaction to the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) having kept the rate unchanged at its latest meeting.
Golding pointed out that the average price of a home purchased by a first time buyer has over the past two years increased from R750 000 to R900 000. This means that the saving in transfer duty – supported by the stability in the repo rate - has the potential to stimulate further buying in this price band, among both new buyers as well as those upgrading from existing homes. This in turn will filter through the marketplace, helping mitigate the relatively moderate growth experienced in the market over the past year.
The repo rate remaining unchanged at 7% also provides comfort for those with existing mortgages.
“The prognosis seems to be that the repo rate is likely to remain stable for the remainder of the year, with the possibility of an interest rate cut in 2018 or even at the end of 2017," said Golding.
“Naturally, socio-political factors and perceived risks around what transpires regarding US interest rates and other macro-economic influences, bring pressure to bear on the rand, the economy and investor confidence in South Africa in general."
Research by Pam Golding Properties shows the lower price band up to R1m continues to outperform the national market, with growth in prices in this sector continuing to gather momentum.
"This supports the ongoing and increasing demand for housing in the more affordable price bands across all regions around the country,” said Golding.
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The decision by the MPC to keep the interest rate unchanged is a vital boost for stability, according to Samuel Seeff, chair of the Seeff Property Group.
He noted that economic and political stability is vital to get the economy and property market back on the road to recovery.
"Although it remains under pressure, we have seen some positive sentiment come through from the latest FNB Property Barometer, pointing to a marginal improvement and possibly slightly better year ahead for the market," said Seeff.
"We are operating under overall slower trading conditions, save for the Cape that remains on a better footing overall, but there are still plenty of opportunities for buyers, sellers and investors that are keeping the market ticking over."
Seeff pointed out that in a challenging economy and property market, the focus tends to shift to pricing in line with what buyers are prepared to pay.
Bruce Swain, CEO of Leapfrog Property Group, said the decision to keep the repo rate the same provides some relief to consumers dealing with rising food inflation and taxes.
“That being said, interest rates rise and fall and ultimately I would advise home owners not to worry about it too much. We may be at the end of the recent rising cycle or we might not. Rather focus on paying a little extra into your home loan every month and you’ll always have a buffer against any rates increases,” said Swain.
He explained that if a buyer purchases a property for R1.2m, with a deposit of 20%, with a repayment at 11% over twenty years, it will cost the buyer R9 819 per month - excluding interest and municipal rate fluctuations.
However, if the buyer increases repayment by R500 per month, the term reduces by three years, with a saving in interest of R251 484. Increasing the repayments by R1 000 per month, reduces the term by five years, saving the buyer R409 140 in interest.
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While a rate cut would have brought about some financial relief to consumers, the fact that the rate has remained steady for a year now should have helped many to sort out their financial affairs to some degree,” said Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
“The SA Reserve Bank is currently at the end of its hiking cycle. However, this does not mean that consumers should see this as an opportunity to incur further debt, but rather an opportunity to reduce debt and put money aside,” he advised.
“Where possible homeowners should pay more than their minimum bond repayment to reduce the outstanding balance faster and save on the interest paid over the term of the loan. If the interest rates are hiked in the future, the homeowner would have benefited from their decision to pay more, and they would not feel the impact of the increase as much as those who have paid the minimum monthly instalment.”