Reserve Bank rates decision may just be short-term property breather | Fin24
 
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Reserve Bank rates decision may just be short-term property breather

Sep 22 2018 08:15
Carin Smith

The decision by the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) to keep the repo rate at 6.50% (therefore, leaving the base home loan rate at 10%) is likely to be a short-term breather as a rate hike may well come sooner than anticipated, cautioned Stuart Manning, CEO of the Seeff Property Group.

He nevertheless regards the MPC decision to keep the repo rate unchanged this time round as welcome relief for the property market.  

In his view, the unchanged interest rates should encourage buyers still sitting on the fence to get into the market.

"The flat interest rate, slow price growth, rise in property stock levels and positive bank lending landscape, make it an excellent time to buy," said Manning.
 
"It is important to filter out the noise and misinformation [on land reform] and focus on facts. It is still safe to invest in property."

He pointed out that, historically, property has outperformed inflation.

"Although the buyers’ market is here to stay for the time being, it offers plenty of selling opportunities, provided the pricing is market related," he said.

Dr Andrew Golding, chief executive of the Pam Golding Property group, commented that, although the MPC did not raise interest rates on Thursday, persistent rand weakness this year, rising inflation expectations and repeated petrol price hikes suggest that the first hike of the new interest rate cycle may occur in late-2018 rather than in 2019 as previously anticipated.
 
“In a property market largely sentiment-driven, we’ve recently seen evidence of recovery in demand gathering momentum, particularly among first-time home buyers, who will be further encouraged by the steady and relatively low interest rate,” said Golding.

“Given the fact that in the current economic climate consumers in general are cost-focused, price is crucial in the residential property market, so while SA does have a predominantly young population, one has to either rent or own a home, so there is a steady, underlying demand for housing."
 
He pointed out that value for money is a recurring theme for first-time and repeat buyers alike.

Most financial analysts predict that by the end of the year the repo rate will be 6.75%, according to Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.  

"Unless we experience a turn around that sees inflation rates lower over the course of the next few months and considering that the decision was not unanimous with three MPC members in support of a hike and only four in favour of the decision [to hold], it is likely that the MPC will raise interest rates at the coming meeting in November this year," commented Goslett.

John Loos, property sector strategist at FNB Commercial Property Finance, said Thursday's unchanged interest rate decision means no stimulus for an economy already under pressure, and only forecast to grow by 0.7% this year.

This mix of economic weakness and lack of rate cutting stimulus leads him to expect a continuation of low single-digit house price growth which is negative in real terms, "rising cap rates and downward pressure on real commercial property values too, thus sustaining the gradual weakening property market trend of recent years".

The Firstrand forecast is also for interest rates to begin to rise late this year.

Mike Greeff, CEO of Greeff Christies International Real Estate, said the unchanged interest rate will helping people maintain their current bond repayments.

He explained that negative local sentiment and slowing of the market is occasionally counterbalanced in the real estate sector by foreign buyers looking to purchase here and get maximum value for money. Local buyers are also finding themselves in a more stable position.

"The current buyer’s market enables buyers to better negotiate with sellers on the price of properties. Prospective buyers can be further encouraged by the fact that banks also currently have a healthy lending appetite with more bond applications being approved than before, according to bond originator BetterBond," said Greeff. 

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sarb  |  interest rates  |  sa economy  |  repo rate  |  property
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