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Rate cut seen as energy boost for home buyers, owners

Mar 28 2018 19:27
Carin Smith

Cape Town - The interest rate cut announced on Wednesday could be a great incentive for hesitant property buyers, property experts said shortly after the announcement that interest rates had been cut.

The Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) decided to cut the repo rate by 25 basis points from 6.75% to 6.50%, leading to a base home loan rate cut from 10.25% to 10%.

For Samuel Seeff, chair of the Seeff Property Group, the cut will be a welcome boost for the South African economy and property market.

Seeff said the cut will provide much needed stimulation for the property market and - after what he describes as a very flat 2017 - will hopefully be an energy boost to encourage buyers and investors.

"While the outlook for 2018 is much better than last year, it remains largely a buyer’s market for the time being and sellers need to maintain a more conservative approach to their price expectations," said Seeff.
 
"On the upside, the last year has seen lots of new stock come onto the market and that is an excellent time to buy property, especially if it is your primary home."

The interest rate cut of 25 basis points, coupled with ratings agency Moody’s decision to not only leave SA’s credit rating unchanged at one notch above junk status, but to also upgrade the outlook from negative to stable, are positive factors which should provide welcome stimulus for the residential property market, commented Dr Andrew Golding, CE of the Pam Golding Property group.

“The repo rate reduction to 6.5% is the first cut since July 2017. Based on the views of economists and various market commentators, interest rates are now likely to remain unchanged at this level for the remainder of the year," said Golding.

He added that interest rate cuts are always positive for the housing market.

“However, the benefits of this modest reduction may take longer than usual to be felt as households will need to adjust to the (1%) hike in VAT and the general increase in the tax burden via the fuel levy and other tariffs such as electricity, water and property rates," said Golding.

Mike Greeff, CEO of Greeff Christies International Real Estate, expects the rate cut to provide a "very healthy surge" to the property market.

“Any type of easing in interest rates will encourage individuals to get involved in the property sector, as well as bring relief for current bond holders in that it will have two possible effects: it could either create additional disposable income in their budgets, or it will allow for a higher than required bond repayment which can in essence take years off your bond,” said Greeff.

Rhys Dyer, CEO of bond originator ooba, said on a R1m home loan the rate cut will save SA home owners about R39 900 over a 20-year term. The home buyer’s saving will be R166 on their monthly bond repayments.
 
In his view, the current SA property market outlook remains cautiously favourable with moderate house price growth, relatively low interest rates and an increased appetite from the major lenders to lend.

Bruce Swain, CEO of Leapfrog Property Group, commented that the VAT increase, although arguably necessary, has put further pressure on home owners, many of whom are already under financial strain.

While he regards Wednesday's rate cut not as significant cut, he advises home owners to pay the "extra funds" freed up by the rate cut into their home loans as opposed to spending.

Lance Chalwin-Milton, joint managing director of High Street Auctions said a significant segment of South African households has in recent years exercised more restraint in their own financial planning, considering options and needs carefully before making decisions regarding the assumption of new principal debt.
 
“This parsimonious consumer attitude coupled with a refined national economic growth plan bodes well for rates to remain low in the medium term. This provides a measure of relief for current property owners and is a substantial shot in the arm confidence-wise for those who previously delayed investing because the economy was simply too unpredictable,” he said.

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