If interest rates hold at low levels, the outlook for the South African property market appears upbeat, says Seeff chairman, Samuel Seeff.
FNB household and property strategist John Loos says it is widely expected that the MPC decision will be to leave the repo rate unchanged at 5.5 percent, which would imply an unchanged prime rate of 9 percent.
Seeff say low interest rates used to be the core driver of market activity, however, he notes that over the past two years, this has done little to stimulate significant buyer activity.
“Any indication of an increase now is likely to negatively impact the already low demand,” he says.
He says ideally, they would like to see the Reserve Bank’s Monetary Policy Committee (MPC) take a prudent stance on interest rates.
The MPC will announce the interest rate decision later this afternoon.
He points to growth in property sales – thanks to marginal easing of the lending criteria on the part of banks –still, he says they are nowhere near the transaction volumes that would be viewed as normal market activity.
Seeff says the volume of urgent sale stock continues to impact both normal buyer demand and prices and market indications are that it remains vital for sellers to price conservatively and in line with what buyers are prepared to pay.
Sellers who price correctly successfully close deals particularly in the R1.5 million price bracket and in the upper end of the market, he says.
It is still a buyers’ market and he anticipates that this balance will shift early in 2013.
“Buyers looking to secure good value should therefore take advantage while they can, but should do their homework and buy smart.”
However, investors looking to make a profit will have to wait out the year to see how the market unfolds, he says.
FNB household and property strategist John Loos says it is widely expected that the MPC decision will be to leave the repo rate unchanged at 5.5 percent, which would imply an unchanged prime rate of 9 percent.
He explains that from an inflation point of view the current level of interest rates appears appropriate.
Interest rates can also be an important tool in preventing or correcting imbalances in the economy and in certain sector, imbalances which could lead to shocks or crises at a later stage.
Seeff says the volume of urgent sale stock continues to impact both normal buyer demand and prices and market indications are that it remains vital for sellers to price conservatively and in line with what buyers are prepared to pay.
Loos is of the opinion that the household debt-to-disposable income ratio at 74.6 percent as at end of 2011 is still too high.
Although down from a peak near 83 percent in early 2008, at current still-high levels the household sector is not financially solid enough to withstand a “normal” interest rate hiking cycle, which by South Africa’s recent historic standards is about 4 to 5 percentage points.
“While it is difficult to know where a suitable debt-to-disposable income ratio is, I believe that it must at least decline to below 70 percent,” he says.
Loos points out that the level of interest rates is important in restricting household sector credit growth to a rate below that of disposable income growth, in order that the debt-to-disposable income ratio continue to decline.
Despite rapid growth in non-mortgage household credit, slow mortgage credit growth keeps the overall household debt ratio declining, he says.
He says interest rate levels are relative to house price growth.
Goslett says low steady interest rates coupled with affordable home pricing have attracted buyers resulting in the market yielding some goods results in the first quarter of 2012.
Loos says in the property boom years, their alternative calculation of real interest rates, for example, using the difference between prime rate and house price growth, yielded a negative real interest rate of around -25 percent in early-2005.
Real house price growth-adjusted prime rate has declined to a lowly +0.4 percent from above 7 percent early in 2011, but this level would not be a cause for concern regarding speculative pressures in the housing market, notes Loos.
He says the current interest rate levels, while having provided significant financial relief for households, are still high enough to continue to encourage a much needed reduction in the household debt-to-disposable income ratio, while also working against any unhealthy speculation in the housing market.
Adrian Goslett, chief executive officer of RE/MAX of Southern Africa, says that so far 2012 has proven to be a much better year in terms of property sales volumes and values throughout South Africa.
Goslett says low steady interest rates coupled with affordable home pricing have attracted buyers resulting in the market yielding some goods results in the first quarter of 2012.
The low interest rates have also contributed to consumers reducing their debt with more buyers qualifying for home loans.
Goslett anticipates that interest rates will remain stable and demand for property will continue to grow as is consumer confidence in the property market.- Denise Mhlanga
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