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