It is unlikely that the South African Reserve Bank Monetary Policy Committee will cut interest rates during its last meeting for the year.
Samuel Seeff, chairman of Seeff Properties, does not believe that consumers can look forward to any further interest rate reductions.
Samuel Seeff, chairman of Seeff Properties, does not believe that consumers can look forward to any further interest rate reductions.
He says the Reserve Bank has been conservative in their monetary policy and given the upward inflationary trend and continued fuel and utility cost hikes, this would send the wrong message to the market.
“While a rate cut will improve affordability and help reduce consumer debt levels, it is unlikely to stimulate any significant demand push,” he says.
The historically low interest rates have done very little to encourage any significant participation in the market by investors and top end buyers this year.
Seeff says he remains upbeat, but cautions that recovery of the property market will take longer than anticipated given the sluggish underlying macro-economic fundamentals.
He explains that following the robust pre-2007 levels there has been more than four years of slowed activity and market adjustment.
“I believe we are now near the bottom of the curve and that prices and sales volumes are likely to ebb along for at least the next 18 months before any noteworthy uptick.”
There have also been significantly low levels of new developments and new stock brought to the market and this is likely to lead to stock shortage once the market turns, he says.
Seeff points out that the volume of distressed properties continues to weigh on the general performance of the market. Only once there is a significant clearance of these can we look to return to normal activity levels.
He believes that bank deposit requirements will serve to bring more stability to the market in the long term.
When home owners have some of their own money invested in their homes, they would generally work harder to keep up their mortgage payments, he says.
He says there are keen buyers in the market, but sellers need to be mindful of what buyers are prepared to pay and price correctly if they hope to conclude a successful transaction.
Buyers are negotiating strongly and on their terms and he adds now is a good time to buy.
Meanwhile, FNB urges consumers to make provisions for future interest rate hikes despite significant expectation of no interest rate hike on Thursday and the possibility of further interest rate cutting.
Meanwhile, FNB urges consumers to make provisions for future interest rate hikes despite significant expectation of no interest rate hike on Thursday and the possibility of further interest rate cutting.
FNB Home Loans property strategist, John Loos says it would be wise for consumers and households to be wary of interest rate hikes when borrowing money so they do not find themselves with too much debt.
He says while there are no certainties as to how much provision to make, using the past two interest rate hiking cycles which were four and five percentage points respectively, would be a good starting point.
It doesn’t necessarily mean not making one’s desired purchases, but may mean lowering one’s aspirations in terms of the home or car that one may have been considering purchasing if there is no “buffer”, adds Loos.
On fixed interest rates, he says he would not attempt to persuade anyone to fix or float interest rates.
He believes that the more attractive fixed interest rates are often on offer when the interest rate cycle is nearing its bottom, but there still exists a market expectation that rates could go lower.
Loos says fixing interest rates depends on the individual, whether they tend towards the risk averse of the risk taking or their financial situation and how much scope exists for them to absorb interest rate hikes.
Loos adds that the Reserve Bank’s decision on interest rates on Thursday will be primarily focused on the CPI, the slow rate of household and private sector borrowing may perhaps be one important factor persuading the bank to keep interest rates as low as they are.
Jawitz Properties has called for an interest rate cut ahead of Thursday when the Monetary Policy Committee announces the decision following a two day meeting that starts tomorrow.
Herschel Jawitz, chief executive officer of Jawitz Properties believes that the Reserve Bank needs to be bold with the upcoming interest rate decision in the face of a slowing economy and rising inflation.
“A cut in rates will be welcomed in an otherwise challenging property market,” he says.
Jawitz says the residential property market continues to bear the strain of a slow economy, high levels of consumer indebtedness and low consumer confidence.
“Although banks have eased their lending policies over the last year, deposit requirements still pose a challenge to many potential home buyers.”
He says property price growth has held up relatively well at about 4.5 percent in nominal terms equating to a real decline of about 1 percent after inflation.
“A half percent cut in rates would have an impact across the whole residential market in terms of affordability for buyers and relief for home owners who are under pressure to keep up their mortgage monthly repayments.”
He adds that the fewer distressed sellers and repossessed properties in the market, the better it is for the medium term recovery in property prices. – Denise Mhlanga
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