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What interest rate cut means for residential property market

Jan 17 2020 14:39
Carin Smith

Industry leaders in the residential property sector have praised the SA Reserve Bank's Monetary Policy Committee for cutting the repo rate, saying it will help stimulate the housing market. 

The MPC announced on Thursday a lowering of the repo rate by 25 basis points. The repo rate drops to 6.25% and the prime lending rate changes to 9.75%.

The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks. Before Thursday, the last time the bank changed the rate was in July 2019, when it was cut by 25 basis points to 6.5%.

Regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett, was optimistic that the move might spark some movement in the housing market. RE/MAX is celebrating its 25th year of operations within the Southern Africa region.

"This cut will provide further relief to homeowners who are battling to keep up with their monthly repayments, thereby lessening the number of homes that will enter the market and evening out the scales of supply and demand," said Goslett.

"Lower interest rates are likely to incentivise consumers to take on debt, which should, in turn, increase the number of buyers looking to purchase property over this time. I, therefore, remain hopeful that this announcement will translate into some corrective growth for the housing market." 

He said for sellers, the rate cut provides a better chance of securing a sale timeously and at the full asking price, while buyers will enjoy lower instalments on their bond repayments.

Less conservative

Mike Greeff, CEO of Greeff Christie's International Real Estate, also describes the rate cut as a welcome move for the property industry. He says it could also mean that banks are likely to be more lenient when approving bonds.

Samuel Seeff, chair of the Seeff Property Group, believes the stance of the MPC has been too conservative over the last year, at the expense of the economy and property market.

"It missed at least two, possibly three opportunities to cut the rate, given that inflation has remained well within the target range for most of last year while the currency remained reasonably stable, and in fact improved," he says. "The sentiment boost of a rate cut should, however, not be underestimated. We need to see at least a further 50 to 100 basis points cut from the interest rate during the first half of 2020 to restore confidence and provide vital impetus for the economy."

Seeff said that, while the property market has continued ticking over, carried largely by the low to mid-market residential sector, it remains lacklustre.

"The challenge of a slow market is that buyers are struggling to sell their homes in many areas which affects their ability to buy and move up," says Seeff.

"Volumes therefore remain under pressure despite the favourable buying conditions which is now boosted further by a degree of seller fatigue and a readiness to negotiate and sell."

More access for buyers

Dr Andrew Golding, chief executive of the Pam Golding Property group, says having experienced a period of correction in regard to house prices, first-time and a mix of other home buyers are seeing the market in a positive light, further buoyed by financial institutions' robust appetite for lending. This is enabling more aspirant buyers to gain a foothold on the property ladder.

"Pockets of solid activity are evident in all markets, for example, metros where demand is outstripping supply, including coastal markets and secondary coastal towns, but particularly frontline coastal property which has consistently retained value, as well as commuter belts which have high appeal for those seeking a convenient live, work, play lifestyle," he added.

"It is unlikely we will see a sustained recovery in the residential market until the economy enters a decisive growth phase...We anticipate that while house price inflation this year may be stronger than last year, it is unlikely to significantly exceed the prevailing inflation rate, so anticipate another year of consolidation, with pockets of strength."

Carl Coetzee, CEO of BetterBond, for example, on a bond of R980 000 with a 10% interest rate, the monthly repayments are around R9 457. With the repo rate going down, this reduces the minimum monthly repayment amount to R9 295, which eases the financial burden on the bond holder with a saving of R162 per month.

PropertyFox CEO, Crispin Inglis, says in the current stagnant sellers' climate, they are seeing homeowners come to terms with the fact that many homes haven't seen the anticipated growth in value.

"All in all, the repo rate reduction will hopefully kick-start a more positive first quarter, which we hope will continue into the second quarter of 2020," he said.

Bruce Swain, CEO of Leapfrog Property Group, says a lower interest rate in the current buyer's market bodes particularly well for those looking to enter the market for the first time.

"We know affordability remains a key concern as households struggle amidst a stagnant economy, which is why financial relief, however marginal, is great news," he said.

sarb  |  interest rates  |  property
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