Cut won't save house prices

Johannesburg - The latest interest rate cut will not save house prices from further decline, property industry representatives warned on Tuesday.

The monetary policy committee announced a one percentage-point cut in on Tuesday.

For every R1m that a bondholder owes, the latest rate cut will mean a monthly saving of roughly R720 on a home loan instalment.

The instalment on a R1m home loan will now be R2 197 less than before the monetary authorities started to cut rates last year. Another (expected) rate cut in April will bring the total saving to R2 902. And more rate cuts are expected after April.

But Herschel Jawitz, CEO of Jawitz Properties, cautioned that the house market may soften further before bottoming out and that the start of the recovery was probably likely only towards the end of the year.

"The challenge to the recovery of the market is consumer confidence. We have definitely seen more activity in the market in 2009 compared to the end of 2008. There are more people looking but it hasn?t yet translated into more sales. People want to buy but they need to be reassured about where the economy is heading before they put pen to paper."

The banks' tight lending criteria also continues to be a significant challenge in the market even with rates dropping and disposable income rising, he added.

Pieter de Wet, CEO of the property management firm Koleledi Holdings, said it was going to take a lot more than a one percentage point decrease to revitalise construction and residential development activities.

"As it is, landlords who are already battling to pay their bonds, tend to forego payment of their levies as well. The spin-off from this means that sectional title schemes can no longer pay for maintenance of the property and more importantly, security services. This leaves these estates unprotected and vulnerable to crime and vandalism. Clearly this impacts heavily on property investors."

Brian Falconer, CEO of Colliers Residential, also does not expect the property market to pick up significantly right now. But the cumulative effect of the rate cuts will be good news over the next twelve months.

"This would seem to indicate that the property market has now bottomed out and will improve over the next 12 to 18 months."

Falconer has one piece of advice for homeowners: "If you can afford to keep paying the higher amount on your bond, do so. It is the most effective savings instrument on the market, and it's tax-free. It could cut years and millions off your bond.?

- Fin24.com