No rate hike – a relief that could be short-lived?
MAIN IMAGE: Samuel Seeff, chairman of Seeff Property Group; Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa; Dr Andrew Golding, chief executive of Pam Golding Property group and Rudi Botha, CEO of BetterBond.
The property sector, with the rest of South Africa, welcomed the recent decision by the Monetary Policy Committee of the Reserve Bank to keep the repo rate unchanged but it could be short-lived. So this is an excellent time for buyers to invest in property.
Samuel Seeff, chairman of the Seeff Property Group, said the renewed Eskom crisis has again reminded that the economic and governance challenges are deeper than anticipated when President Cyril Ramaphosa took over last year.
Keeping the repo rate at 6.75% and the prime lending rate at 10.25% offers relief for buyers and home owners who are facing pressure on their household budgets with continued fuel and electricity price increases as well as levy increases expected later this year.
On Friday another breath of relief followed the decision by ratings agency Moody’s to not issue a ratings review on South Africa’s credit status, the last of the big three ratings agencies to have South Africa above full junk status. Their next review date is in November.
Seeff says although the group remains upbeat about the economic outlook for the year ahead, it would be remiss not to caution that economic and property market recovery will take time.
“As we head to the end of the first quarter, we are likely to see the impact of the renewed energy crisis and rising fuel, electricity and other costs impact the GDP for the quarter,” says Seeff.
While the CPI rate at 4.1% AS AT February is still within the 4%-6% target range of the Reserve Bank, Seeff says that it may well rise in the coming months due to the Eskom fall-out. “Combined with renewed volatility in the currency, we may well again be back in a interest rate hiking cycle sooner than what we had hoped for.”
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, also says the risk of a hike remains. Annual consumer price inflation increased to 4.1% in February 2019, up ever so slightly from 4% in January. The MPC has warned that it will adjust interest rates should negative risks push inflation beyond the mid-point (4.5%) of their target range of between 3% and 6%.
“As it stands, house price growth is only marginally outgrowing inflation. The Standard Bank Housre Price Index (HPI) placed house price growth for February at 4.3% y/y, down from 4.4% y/y in January. By keeping interest rates unchanged, the MPC has allowed the housing market to continue its gradual correction following a year of house price decline in relation to inflation levels during 2018,” says Goslett.
Goslett therefore encourages buyers to enter the market as soon as possible before prices begin their upward climb. “Following the elections in May, it is possible that the property market could begin a gradual shift into a seller’s market over time, lessening the opportunities for buyers to pick up a good deal. Beyond this, should inflation continue to rise and the MPC should later decide to raise interest rates, buyers who get into the property market early will have bought themselves a few months of lower bond repayments in the early years of their bond’s lifespan where the majority of your monthly instalment goes towards paying off interest,” Goslett concludes.
“With opportunities in the market to acquire accessibly priced homes amid a stable interest rate and competitive bank lending environment, coupled with slightly lower house price growth rates, this is in fact an opportune time for first-time buyers in particular, to make sound buying decisions. This is especially true of areas which are poised for growth,” says Dr Andrew Golding, chief executive of Pam Golding Property group.
Rudi Botha, CEO of bond originator BetterBond, says buyers have an advantage at the moment as the banks are keen to lend to them.
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