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Varied reaction from property sector on SARB interest rate decision

Jan 18 2018 21:15
Carin Smith

Cape Town - The decision by the monetary policy committee (MPC) of the SA Reserve Bank (SARB) on Thursday to keep the repo rate unchanged at 6.75% is very disappointing for the SA economy and the property market, according to Samuel Seeff, chair of the Seeff Property Group.

The prime lending rate will remain at 10.25%.

In Seeff's view, the time was right for the MPC to announce a rate cut, because of the stronger rand and inflation being "stable" within the SARB target range. Such a rate cut would have stimulated not only the SA economy, but the property market as well, he said.

"The economic challenges notwithstanding, there will always be activity in the market as people need to buy and sell for a variety of reasons. The first few months of the year is usually more active and we would urge those looking to sell or buy to go ahead and do so," explained Seeff.

He pointed out that the most recent FNB Property Barometer indicates that, against expectation, the national house price growth rate improved on a month-to-month basis throughout 2017 from a low of 1.5% year-on-year in December 2016 to 6.1% for December 2017.

The overall growth rate for 2017 averaged at 3.7% and FNB expects it to be stronger in 2018 at around 5%.

Seeff added that further, in his view, the election of Deputy President Cyril Ramaphosa as ANC president has boosted consumer and business confidence and is sending a positive message to the market.

Stable start

Dr Andrew Golding, chief executive of the Pam Golding Property Group (PGP), regards the MPC's decision to keep the repo rate unchanged as a stable start to the year.

While the political transition currently under way is in itself unlikely to create an environment for interest rate cuts, it is helping to ease pressure on the bank to hike rates, in his view.

With the national budget pending in February and potential further risk to SA’s credit rating, Golding is not surprised that the MPC decided not to cut interest rates at this point. At the same time, he hopes that lower inflation and a less volatile political environment will increase the likelihood of a rate cut in the near future.

He said, according to FNB economist John Loos, this is the first time in a while that the economy will be supporting the housing market.
 
“With the economy expected to strengthen somewhat and interest rate hikes most likely delayed, the outlook for the local housing market is more upbeat this year. Just how much better, will become increasingly apparent in the weeks and months ahead," said Golding.

The demand for property in Cape Town’s residential developments remains "healthy" for new, off-plan developments, he said. Buyers are, however, aware of costs and seek fair value and good capital growth. This sector is further boosted by a big investor market as well as a strong demand from those wanting to scale down.

As for the Gauteng property market, he said there has been an uptick in activity and interest from serious buyers across all price bands, including the luxury market above R10m and secure residential estates.

Caution

The MPC has basically opted to rather err on the side of caution by not changing the repo rate, said Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

He advised homeowners to try and place themselves in the best possible financial situation while the interest rates remain "favourable and stable". In that way they can try to reduce the impact of future economic changes.

“A steady low-interest rate gives consumers the opportunity to create an emergency fund...It is also an opportunity to reduce their level of debt before another hiking cycle,” said Goslett.
 
“If a homeowner has a bond of R1m at the current prime interest rate of 10.25% over 20 years, and paid an additional R500 into the bond every month, it will reduce the term of the loan by almost three years, and you will save R221 106 in interest.”

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