Today’s’ decision by the Reserve Bank’s Monetary Policy Committee (MPC) to cut interest rates by 25 basis points, with the home loan lending rate now at 10% down from 10.25%, is welcome news for homeowners and would-be buyers.
Here’s what the property industry has to say…
Lower interest rate will stimulate housing market, says ooba
Bond originator ooba welcomed the rate cut and says on a R1 million home loan, this decision will save South African homeowners approximately R39 900 over a 20-year term. The saving will be R166 on monthly bond repayments.
“ooba expects the lower interest rate to stimulate the residential housing market as prospective home buyers will now find it easier to afford the repayments on a new home loan,” says Rhys Dyer, CEO of ooba.
“The current South African property market outlook remains cautiously favourable with moderate house price growth, relatively low interest rates and an increased appetite from the major lenders to lend.”
This will provide much needed stimulation for the market and after a very flat 2017, will hopefully be an “energy boost to encourage buyers and investors”.
Although largely expected, Seeff says it’s a welcome reprieve for consumers and property owners who face higher living costs due to the 1% VAT hike taking effect on the 1 April.
He says the election of Cyril Ramaphosa as President of the ANC and of SA has been a positive development for country, economy and property market. Action around State Capture, the prosecution of Jacob Zuma and the Cabinet shuffle to return confidence to major sectors of government have all been well received by the market, business and the ratings agencies.
Currently, inflation is at around 4% which is within the Reserve Bank’s target range of 3% to 6%. The rand also continues to perform well, although it is always subject to a degree of volatility.
While the outlook for 2018 is much better than last year, it remains largely a buyers’ market for the time being and sellers need to maintain a more conservative approach in their price expectations.
On the upside, the last year has seen lots of new stock come onto the market and he says it is an excellent time to buy property, especially if it is your primary home. “Prices have remained fairly flat over the last 12 to 18 months as the market took a breather and there are many motivated sellers.”
This interest rate cut is a great incentive for hesitant buyers and there is no reason to wait, it is a good time to buy, he says.
Rate cut a further boost for market sentiment
Today’s announcement coupled with Moody’s decision to not only leave South Africa’s credit rating unchanged at one notch above junk status, but to also upgrade the outlook from negative to stable, are positive factors which should provide welcome stimulus for the residential property market
“These announcements are favourable for consumers and market sentiment. Firstly, with Moody’s decision another cloud of uncertainty has been lifted from the local economic landscape. The news reinforced recent rand strength and, since it follows a better than expected inflation release for February – with the inflation rate easing to just 4%, marginally below market expectations – this strengthened the case for an interest rate cut.”
The repo rate reduction to 6.5% is the first cut since July 2017 and based on the views of economists and various market commentators, interest rates are now likely to remain unchanged at this level for the remainder of the year
“While SA’s economic prospects have improved since the recent change in political leadership, growth forecasts remain relatively subdued and with consumers facing the prospect of a 1% hike in the VAT rate from April 1, the case could be made for a further modest easing in interest rates.”
Interest rate cuts are always positive for the housing market. “However, the benefits of this modest reduction may take longer than usual to be felt as households will need to adjust to the hike in VAT and the general increase in the tax burden via the fuel levy and other tariffs such as electricity, water and property rates.”
“Buyers continue to demonstrate a willingness to embark on first-time acquisitions as well as properties for upgrading or downsizing, or simply relocating, depending on their individual requirements.
“Not surprisingly, the demand for convenient, lock-up-and-go hassle-free sectional title units accessible to the workplace and all amenities proceeds unabated, while the appeal of secure estate living with a range of value-add benefits on hand such as outdoor, sports and leisure activities, beckons to a cross-section of home buyers.”
The property market can expect a “very healthy surge”
“Any type of easing in interest rates will encourage individuals to get involved in the property sector, as well as bring relief for current bond holders in that it will have two possible effects: it could either create additional disposable income in their budgets, or it will allow for a higher than required bond repayment, which can, in essence, take years off your bond.”
Greeff says a lower interest rate is also a positive for the banking sector, as it will create an influx of customers applying for home loans. “These clients are willing to enter into long-term commitments with banks and lending organisations, which would guarantee income stability for the next two decades at least.”
He says the rate cut as it is sure to create increased demand for property, stimulate the economy and will allow more buyers to consider property as an investment as opposed to just residential purposes.
South Africans won a small victory today
Leading up to the announcement, the general consensus was that rates would in all likelihood be lowered. This was based on the sentiment that the country had seen a succession of good news in the last quarter. Also, recently, the RMB/BER Business Confidence Index revealed an 11 point increase for the first quarter of 2018, moving the country to a reading of 45 points – the highest level reached in three years.
Now was the perfect opportunity to stimulate the economy with a rate cut, says Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett. “Leading up to today, there have been many encouraging signs and consequent offshoots that have impacted the economy positively. We applaud the decision of the MPC to make the cut, as we believe that this will continue to stimulate growth and strengthen investments.”
With the VAT increase set to take effect in April, a lowered interest rate also alleviates some of the financial strain consumers are bound to face during this time.
“The rates cut provides consumers with some much-needed financial relief. Shrewd citizens will use this opportunity to save for future investments, or reroute the money they’re saving straight back into their bond repayments,”