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Here's what the rate cut could mean for the property market

Jul 18 2019 16:27
Marelise van der Merwe

Thursday's announcement of a rate cut by the SA Reserve Bank's Monetary Policy Committee has been met with enthusiasm by property industry leaders, who have said it will encourage hesitant buyers and "be well received by every sector of the economy".

Herschel Jawitz, CEO of Jawitz Properties, said consumer confidence is the key to recovery of the residential property market, and the rate cut could mean a much-needed reprieve.

The MPC cut the benchmark interest rate by 25 basis points to 6.5% from 6.75%. It was the first time since March 2018 that the benchmark interest rate has been cut. Changes in the repo rate affect the prime lending rate, which is the lowest rate at which banks start lending to clients. With the repo rate down, the prime lending rate will decline to 10% from 10.25%.

"In the current economic, social and economic environment, people are not thinking twenty-year mortgages and, as a result, potential buyers have been adopting a wait and see approach to buying property," Jawitz said.

According to Jawitz, the 25 basis points cut, which equates to a reduction of about R164 per month per million rand of mortgage debt, is not going to have a significant impact on current repayments or affordability.

However, he said, "with a petrol price cut last month and now a rate cut, however small, consumers may start to feel a little better about their future financial well-being, which is critical from a consumer confidence point of view".

Jumpstart

Jawitz believes the current residential market, combined with a positive lending environment, offers buyers a solid opportunity for long-term value. "The perception that banks are part of the challenging market is wrong," he said, adding that in real terms, property prices have not kept up with inflation in recent years. Bad news for sellers, good news for buyers.

Mike Greeff of Greeff Christie's International Real Estate said the rate cut would likely encourage "wait and see" potential buyers to buy, adding that it would also be "well received by every [other] sector of the economy".

"The drop will have an immediate easing effect on consumer budgets and will make more disposable income available as a cash injection into the economy. This rate cut should also encourage business owners, whether big or small, to continue this growth trend through job creation and employing more people."

He added, "Prospective buyers will also be more likely to obtain funding from lending institutions as the government looks to jump-start the economy. This is not a bad strategy at all, as it sends a very positive and proactive message to foreign investors and governments that South Africa is filled with potential and ripe with investment possibilities."

This was possibly "the first bit of encouragement given to the citizens of South Africa by the government", Greeff added.

Not all experts in the property industry were as optimistic.

'Should have been bolder'

Samuel Seeff, chair of the Seeff Property Group, said the Reserve Bank "should have been bolder" and opted for a 50bps cut.

"At a time when the economy and property market are really struggling, we needed courage. A bolder rate cut is already factored into the currency and the Reserve Bank should have done more to inject impetus to support President Ramaphosa’s reforms to get the economy and confidence back on an upward trajectory," Seeff said.

"Sentiment remains worryingly low and the market needed a much stronger message. Consumers are struggling and it has been a tough year with rising costs and a weak economic and growth climate. We need real reprieve of some of the economic pressure faced by consumers to free up more disposable income and entice them back into the property market in numbers."

There have been limited signs of economic improvement or uptick in property sales that were expected following the elections, "despite the phenomenal buying conditions", Seeff added.

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