Experts hopeful for upturn following rate cut
MAIN IMAGE: Rudi Botha, CEO of BetterBond, Dr Andrew Golding, CE of Pam Golding Property group, Samuel Seeff, chairman of Seeff Property Group, Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, Herschell Jawitz, CEO of Jawitz Properties and Bryan Biehler, MD of Huizemark.
With the first rate cut in more than a year, putting prime lending rate at 10% (down from 10.25%), property experts say things are starting to look up for the industry.
Although the Reserve Bank’s announcement last week to cut interest rates by 0.25 percentage points was expected, it was widely welcomed by the property industry although there were some that felt the bank could have opted for a bigger cut.
The rate cut follows on the heels of a drop in fuel prices last month with indications that international oil prices could fall further. The rate cut is also in line with international trends to lower rates as has already happened in some Asian countries and the Federal Reserve is expected to lower rates in the US this month.
“This creates leeway for the Reserve Bank to lower SA rates without the country becoming unattractive to international investors, who are always looking for the best returns on their money,” says Rudi Botha, CEO of bond originator BetterBond.
All good news for SA’s battered consumers and could hopefully signal the beginning of the return of consumer confidence.
“This is vital for the real estate market which runs on positive sentiment, and we hope for an increase now in housing demand which has been relatively flat for the past year,” says Botha.
For existing homeowners the rate cut will mean a slight drop in the amount due each month as repayments of their homeloans – R16 a month per R100 000 borrowed or R166 a month per million rand.
“More importantly for the property industry, the change means that first-time borrowers will now find it easier to qualify for a loan. Equally importantly, it will lower monthly bond repayments and make home ownership more affordable at a time when household budgets are under severe pressure,” Botha says.
Governor Lesetja Kganyago says on Thursday the Reserve Bank expected the economy to grow at a rate of 0,6% this year and 1,8% in 2020, after rebounding from its first quarter slump.
Read more: SA reserve bank cuts repo rate
Dr Andrew Golding, chief executive of the Pam Golding Property group, says the reduced repo rate, albeit modest, serves to send a positive message to investors, buyers and those with existing mortgages.
Golding continues that they’ve already noted continuing signs of a gradual recovery in the SA housing market, with national house price inflation inching up to 3.8% in June 2019. The Western Cape leads the rebound, at 6.5% in the same month, while KwaZulu-Natal is also experiencing a slight uptick.
“Not surprisingly, national house price inflation in the more accessible, lower price band up to R1 million continues to accelerate fairly rapidly, rising by 6.61% for the period January to June 2019, with the Western Cape soaring at 13.68% in the same price band. In addition, Gauteng East’s rebound is also gathering momentum, making it the top performing Gauteng market with house price inflation of 3.6% during the first quarter 2019.
“It is encouraging to see that the national housing market already appears to be starting to see these promising signs which bode well for an uptick in activity now that the dust has settled on the election.
While they welcome the decision by the Monetary Policy Committee (MPC) to lower the interest rate, Samuel Seeff, chairman of the Seeff Property Group, says the bank should have been bolder and opted for a 50bps cut.
“At a time when the economy and property market are really struggling, we needed courage. A bolder rate cut is already factored into the currency and the Reserve Bank should have done more to inject impetus to support President Ramaphosa’s reforms to get the economy and confidence back on an upward trajectory,” says Seeff.
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, says there could not have been a more opportune time for the MPC to stimulate the economy and provide some much-needed economic relief by announcing a cut in interest rates at this meeting.
Goslett goes on to say that this announcement is an encouraging one for the housing market. “An interest rate cut generally results in an increase in the amount of home loans granted as consumers are more willing to take on debt while interest rates are low. An interest rate cut therefore increases market activity and drives up prices – which is exactly what the property market needs at this time to rectify the real house price decline that we have experienced since last year.”
Herschel Jawitz, CEO of Jawitz Properties, says the current residential market offers buyers opportunities not seen since the market crash 11 years ago. In real terms, property prices have not kept up with inflation over the last few years and, in nominal terms, in certain parts of the country, prices are falling. Even the Western Cape market, including the Atlantic Seaboard, is seeing a softening of prices. To get into the market at these price levels, buyers have a real opportunity to create long-term value.
The lending environment also remains positive. Lending rates and approvals are the best they have been since 2008. A sluggish residential market means the banks are a lot more competitive now than they have been with new lending products coming onto the market, Jawitz adds.
Bryan Biehler, managing director of Huizemark, says the they believe this drop of 0.25% could “kick start” renewed interest in the property market, especially with a bit more confidence in the economy and South Africa. “We’re expecting the property market to react positively to this good news,” he said.
Richard Gray, CEO of Harcourts, says this comes as welcomed relief in a time when many South Africans are feeling the pressure. Further good news is that many economists are predicting another cut later in the year.