Johannesburg - The decision by the
Reserve Bank's Monetary Policy Committee to cut the repo rate by 50
basis points to 7% will provide the property market with a little
relief, but it is likely to remain stagnant, says Brian Falconer, CEO
of JSE-listed Colliers Residential.
"Given some of the positive indicators that have been unfolding
during the year, we would have hoped for more than a 50 basis point
cut - maybe a full 100 basis points cut," says Falconer. "Instead we
will continue to see the market drifting along for at least another
two months and possibly until the end of the year."
Struggle for all
The decision, possibly the last under outgoing governor Tito
Mboweni's tenure, means homeowners will continue to struggle under
the burden of high monthly repayments; new entrants will find it
difficult to acquire homes; developers will struggle to get new
developments off the ground; and the banks will remain reluctant to
advance credit.
"The entire cycle is sluggish, and unless interest rates
continue to ease, as they did in the first half of the year, the
property market will remain in the doldrums, with negative
consequences for all involved," adds Falconer.
Since December the repo rate has now been cut by a full 500 basis
points, and bond-holders have enjoyed thousands a month cut off their
monthly repayment.
While global indications are increasingly positive - profitable
banks and slowing job losses in the US, and the Chinese market
starting to grow again - it will take time for these to work through
into the South African market.
"We can but hope for a further rate cut when next the monetary
policy committee meets in September," concludes Falconer. "The
property market and the economy as a whole could certainly do with
it."
Andrew Golding, chief executive of the Pam Golding Property group,
described the rate cut as undoubtedly a positive step forward for the
economy in terms of helping boost growth. He added that while noting that
South African economic confidence is slightly up, due consideration should
be given to the inflationary effects of government wage settlements and high
food, electricity and fuel prices.
Household debt high
And from a housing perspective while the interest rate reductions already
experienced have been most welcome, household debt remains high, which makes
today's announcement all the more relevant. "Hopefully this is a further
positive stimulus towards the banks' relaxation of the very stringent
lending criteria," he said.
"While trading conditions remain constrained there do appear to be
glimmers of light at the end of the tunnel. We are seeing the residential
property market showing increasing signs of activity at all levels and even
within the mortgage sector there are stirrings of life, despite the fact
that access to affordable finance remains a key obstacle for home buyers,"
Golding said.
He added: "Speculators are returning to the market, as well as longer
term investors; there is increased attendance at show days, and from sellers
an acceptance of more realistic pricing. There is also a sense that the
advent of banks' renewed interest in the lending market is much closer
rather than further away, albeit with a high loan to value ratio. Of course
there is also the top end sector - with its high percentage of cash buyers -
which continues to transcend those market conditions which are unique to the
mortgage market.
"Against this backdrop there remain pockets of activity
which belie national trends - areas such as Stellenbosch and Grahamstown,
which with their unique micro markets continue to experience strong supply
and demand characteristics.
"Off the back of this activity it is a fact that unit sales have not
materially improved, and there is still a great deal of stock on the market
at present. One also has to bear in mind that we are still in midst of
winter which traditionally is generally a somewhat quieter season for the
residential property market, particularly in some areas."
Improved affordability
The latest interest rate cut will give some further support to a
heavily-indebted household sector, still struggling with debt repayments,
while the lower mortgage rate will further improve the affordability of
housing, says Luthando Vutula, Managing Executive of Absa Home Loans.
Vutula said that "this further cut in interest rates implies that
mortgage repayments have dropped by 26.3% since December last year when the
mortgage rate was still 15.5%. The monthly repayment on a R500 000 mortgage
loan over a 20-year term has dropped by another R169 after the latest rate
cut. This implies a cumulative monthly saving of R1 778 on a R500 000
mortgage loan since December last year".
Despite lower interest rates, the economy is expected to remain under a
lot of pressure until the end of the year, which will continue to impact
employment, household income and the property market.
In view of these developments Vutula encourages consumers to keep
expenses under control and looking to buy properties that are affordable,
based on their financial position.
- I-Net Bridge