Consumers are able to enjoy the current interest rate for a while longer, as Reserve Bank Governor, Gill Marcus, announced today at the third Monetary Policy Committee meeting of the year that the prime interest rate would remain at its current 9 percent says Adrian Goslett, chief executive officer of RE/MAX of Southern Africa.
Consumers are able to enjoy the current interest rate for a while longer, as Reserve Bank Governor, Gill Marcus, announced today at the third Monetary Policy Committee meeting of the year that the prime interest rate would remain at its current 9 percent says Adrian Goslett, chief executive officer of RE/MAX of Southern Africa.
The repurchase rate will remain at 5.5 percent. While this will come as a relief to consumers, economists are still expecting the rate to be hiked throughout the remainder of 2014, says Goslett.
“Unfortunately with the weakness in the currency and inflation pressure, the Reserve Bank will have little choice but to raise the interest rates in the near future
“The Reserve Bank Governor has made it clear that consumers should expect to see rate hikes in possible varying increments during the remainder of the year.”
He notes that it is likely that these future rate hikes will have an effect on the property market to a degree, considering that most aspirant homeowners will require finance to purchase a property.
“The increased cost of credit could hold some buyers back a while longer, however, there is a strong indication that consumers are confident in the property market and are eager to get their foot in the door.
Currently property sales are still performing well with demand outstripping supply in many regions throughout the country, proving that South Africans still value homeownership, according to Goslett.
Even though house prices are only seeing marginal gains this year, Goslett says that even a small value increase points to a more stabilised environment than we were experiencing a few years ago.
“Property price growth is important for those who currently own property, however, property remaining within an affordable range is equally important for potential first-time buyers.”
According to Goslett current interest rates are still highly favourable for buyers and will only make a noticeable impact on the market if they are raised significantly.
He notes that affordability levels are of greater concern for the future of the property market.
“While future rate hikes are likely to place more pressure on buyers, reducing debt levels will increase the applicant’s chances of bond approval and make affording a home far easier.”
Meanwhile, Dr Andrew Golding, chief executive officer of the Pam Golding Property group, says the decision to keep the repo rate steady is good news for the residential property market.
“Maintaining stability in the interest rate sends a positive message and reinforces much needed confidence among home buyers and investors, and hopefully will further improve sentiment and add impetus to the recovery in the property market,” he says.
Coupled with this is the fact that mortgage lenders are demonstrating an increased appetite for lending, which is ultimately the most important driver of activity in our property market.
Even though house prices are only seeing marginal gains this year, Goslett says that even a small value increase points to a more stabilised environment than we were experiencing a few years ago.
Golding points out that one does, however, need to be circumspect regarding this optimism in the light of CPI (Consumer Price Index) inflation edging upwards and as a consequence the fact that consumers continue to be beset by rising food and fuel costs, as well as electricity, water and municipal rates and tariffs, all of which erode disposable income.
Another source of concern is the extent to which the country’s GDP growth is lagging targets required for sustainable growth, which is necessary for the property market to prosper and thrive.
“On another, positive note, the peaceful election with very little disruption served to reassure markets - the property market included.”
He says the Pam Golding Property group is noting brisk market activity across all price bands. The top end from R10 million and upwards of R20 million is moving strongly, while the price bands both above and below R5 million are experiencing strong and increasing activity.
Developers are also more and more active, bringing stock to market in prime locations in high demand areas - mainly in metropolitan areas, and geared to cater for specific pricing requirements. The rental market is buoyant, adding further appeal for buy-to-let investors, he points out.
“As is generally the case, the market adjusts and adapts to new challenges and demands and the ongoing resilience of South Africa’s property market continues to attract aspirant home buyers and investors who appreciate the sound investment benefits of homeownership over the medium to long term,” says Golding.
Seeff chairman Samuel Seeff says the decision by the Reserve Bank’s Monetary Policy Committee to retain the repo rate at 5.5 percent is a welcome reprieve for the property market and will further boost buyer confidence.
For the first time in six years, we can confidently say that housing is in a growth phase and stability right now is more important than ever, he says.
On the back of the continued sluggish economic growth and creeping inflation, a rate hike towards the third or fourth quarter of the year though is probably unavoidable, but Seeff says that for now at least, this decision is good news.
Although a rate hike is unlikely to seriously dent the buoyant buyer activity, largely due to the pent-up demand that has been building over the last few years, it will affect the affordable, sub-R1.5 million sector of the market.
While household debt on the whole has been coming down, a rate hike will most certainly see home loan affordability take a knock as will the ability of consumers to service their monthly debt including their bond repayments, says Seeff.
The knock-on effect on the basic cost of living with increases in the prices of especially food and transport will put further pressure on the already burdened household budgets.
Consumers should therefore continue to focus on paying off their debts, put off luxuries and save, save, save, he points out.
Despite the significant challenges, the South African property market continues to show the ability to bounce back, albeit gradually.
Demand has been building for six years and many buyers have decided that now is as good a time as any to buy.
Seeff says that for the first time in years, we are also beginning to see a gap between supply and demand develop in many areas including the top end of the market with stock shortages a real challenge.
While foreign buying is up, Seeff says that it is largely South African buyers that are driving the demand. The bond approval rates continue to improve and, we have seen more cash buyers, including expats willing to put their money into property. This says a lot about our enduring optimism and confidence in the country and property market.
All things considered, Seeff believes that despite the continued economic uncertainty, this should be a good year for property.
News out of the USA, UK and Europe insofar as their economic recovery is concerned, continues to be positive and, with the elections now behind us, it is time to get back to business.
“On the back of our very successful and credible elections, we should see improved confidence, both from foreign investors and South Africans.
“What we need now is a positive economic outlook and measures aimed at kick starting our economic growth - it has surely now been long enough,” he adds.
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