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Don’t worry too much about interest rate movements

MAIN IMAGE: Dr Andrew Golding, chief executive of the Pam Golding Property group; Tony Clarke, managing director for Rawson Property Group; Gerhard Kotze, managing director of RealNet estate agency group.

It is disappointing that there wasn’t a repo rate cut in November, but potential buyers should not spoil their own chances of becoming home-owners by worrying too much about interest rate movements or property market cycles.

No rate cut in November disappoints

Last week leaders in the property sector voiced their disappointment that the Reserve Bank’s Monetary Policy Committee’s decision to keep the repo rate unchanged at 6.5% and the mortgage rate at 10%. However, Moody’s also gave South Africa a negative outlook for its investment grading and lowered its economic growth outlook for the country from 1.5% to 1% for 2020.

“We believe there was room for a further rate cut particularly as inflation appears to have been reigned in to some extent. Even a modest reduction in the key lending rate, on the back of the previous interest rate cut in July (2019), would have been widely welcomed by consumers – including aspirant home buyers, and would provide some relief to existing home owners with mortgage debt,” explains Dr Andrew Golding, chief executive of the Pam Golding Property group.

Samuel Seeff, chairman of the Seeff Property Group, says the news that inflation had dipped to a nine-year low of 3.7% (from 4.1% in September) along with a reasonably stable currency should have been enough to motivate a rate cut. The economy and consumers can do with some good news and it would have been a welcome boost as we head into the important retail season.

Tony Clarke, managing director for the Rawson Property Group, says the cautious stance from South African Reserve Bank to leave interest rates unchanged may not be the worst thing in present circumstances. Analysts anticipated that the bank would keep rates unchanged considering the risks to the rand including the possibility of a credit-ratings downgrade from Moody’s.

“Balancing inflation and economic growth is a delicate business, and a conservative approach towards stabilising volatility is an important part of preparing for future growth and should hopefully settle concerns from investors over our country’s ability to take our economic outlook seriously,” he says.

A prime lending rate of 10% still remains favourable for property buyers, particularly when paired with the generous bond rates on offer from eager lenders.

“It’s been more difficult for lenders to meet their bond quotas since market activity has slowed,” says Clarke, “which has incentivised them to be more competitive in the interest rates they’re offering. Applicants with suitable profiles who can prove a stable income and a responsible financial attitude are being granted very favourable interest rates at present.”

This, combined with the abundance of well-priced properties currently on the market, paints an attractive picture for buyers looking to invest on the cusp of a property market upswing. According to Clarke, signs of this upswing have already begun in the form of a slow but steady increase in market activity which is predicted to strengthen over the typically busy summer period.

“The market will take time to recover fully from this extended contraction, and buyers are still in a position of strength with supply outweighing demand for now,” he says. “Until that changes, it’s essential that homeowners price their properties according to current conditions, preferably with the help of a comparative market analysis conducted by an experienced property professional.”

Don’t worry too much about interest rate cuts

“With buying a home, as in purchasing shares, market ‘timing’ is not the only factor that should be taken into account – and the most successful investors know that while buying low and selling high is important, you can also only make money when you are actually in the market,” says Gerhard Kotzé, managing director of the RealNet estate agency group.

“They don’t sit on the side lines trying to figure out when certain stocks will hit their absolute lowest or highest values but do try to buy those with good growth prospects and the ability to keep delivering good returns. And we think consumers should look at home buying in the same way.”

Apart from interest rates and home prices, he says, prospective buyers need to consider variables such as the type of home they want, price trends in the particular area that they prefer, possible renovation costs, transfer costs and the availability of finance as well as favourable interest rates, and be prepared to jump into the market when it seems that most of these factors are lined up in their favour.

“Those who want to be homeowners should rather concentrate their energies on actually getting into the market – that is, on finding a home that suits them in an area with good growth prospects, at a price within their home loan qualification limit.

“And their chances of doing so right now are actually really good. Stock levels are still high in most areas, which means that potential buyers have more homes to choose from and more scope to negotiate price.

“At the same time, there is a heated battle going on among the banks for new home loan business, and they are offering competitive interest rates and bond packages to attract new clients. First-time buyers with good credit records but not much cash may even have the option of a home loan that includes the bond registration, legal and transfer costs.”

“On the other hand, population growth and rising demand for rental homes, especially in SA’s urban areas, mean that those who buy investment properties now stand to benefit from both rental and capital growth over the lifetime of the bond, proving the worth of their property purchases,” he ends.

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