MAIN IMAGE: Tony Clarke, MD Rawson Property Group; Samuel Seeff, chairman of the Seeff Property Group; Richard Gray, CEO Harcourts SA; Eberhard Kruger, director Van Zyl Kruger Attorneys.
In these uncertain and challenging times, the latest rate cut brings welcome relief for distressed home-owners. Will government roll out more measures to assist with economic growth?
The property sector welcomed the SA Reserve Bank’s surprise decision this week to cut the repo rate by 1% to 4,25% with effect from 15 April. This brings the total drop since January to 2,25%. The prime lending rate now stands at 7,75% – it’s lowest level in more than 25 years.
The news of the latest rate cut offers welcome reprieve to distressed property owners. According to MegaTrends Property Hotline for investors and home-owners with existing mortgage loans, the rate cuts will mean a drop of around R62,80 for every R100 000 outstanding on the loan. This means that for those with a bond of R1m, for example, the monthly repayments dropped by R628 from 15 April.
Combined with the lower repayments on all forms of credit, including car finance, personal loans and credit card balances, this will bring significant relief to many households currently in financial distress due to the Covid-19 lockdown.
The move is thus positive for the real estate market as it will help many existing homeowners to keep their properties.
“The decision by the Reserve Bank to cut the repo rate by a further 100 basis points is to be applauded and absolutely necessary for the economy and property market,” says Samuel Seeff, chairman of the Seeff Property Group.
This rate cut takes the interest rate to a new historic low. Together with the previous cut, this is vital for when the country comes out of the Covid-19 lockdown and the recovery starts, he says.
Richard Gray, CEO of Harcourts SA, has also welcomed the decision on the rate cut because he says it makes buying a home more affordable and boosts consumer confidence which could translate into increased economic activity in these uncertain times.
“The man on the street is certainly bearing the brunt of an economy under serious pressure and as the long term effects remain unclear at this point this announcement will help many consumers breathe a sigh of relief and help mitigate the ominous situation we face from a financial perspective,” Gray says.
Will it be enough to stimulate the property market?
It is no secret that the COVID-19 restrictions have added immense strain to an already struggling and weak economy. In it’s latest Monetary Policy Review, the SA Reserve Bank said they expect the economy to contract by between 2% and 4% due to the extension of the lockdown. Many businesses are unsure whether they will be able to survive the long road to economic recovery and thousands of people are currently unsure whether they will still be employed in a month’s time.
In light of the country’s precarious economic situation, Tony Clarke, managing director of Rawson Property Group, says he doubt whether the 1% drop in the repo rate will make a major difference in the long run.
“Urgent sales will go ahead. The R1m to R1.5m market is going to move, but this will be short-lived and then there will be a drop in prices and sales. My advice is that homeowners use the money they save on the lower mortgage rates to keep paying their bonds,” he says.
There certainly lies a long road ahead towards just achieving positive economic growth. However, the important thing to remember is that people will still need a place to live – whether they rent or buy.
Seeff says the two rate cuts provide a saving of about 20% for property buyers which he says is a significant boost for demand. He expects that the property market will emerge from the lockdown with a level of pent-up demand, but still mainly in the primary residential market to around R1.5m (up to R3m in some areas). Above that price level, especially where buyers are not so reliant on mortgage finance, Seeff also believes that activity will remain muted.
The latest rate cut certainly makes buying a home more affordable and attractive which could translate into a renewed energy in the real estate market says Eberhard Kruger, director Van Zyl Kruger Attorneys.
“It is imperative we keep in mind that real estate is a long-term investment with the unique ability to often defy market trends and overcome short term obstacles.
The next few weeks are going to be difficult to predict but it seems government is trying to do all it can to create an environment conducive to growth in the face of a major health crisis,” ends Kruger.
Further good news include that SA Reserve Bank governor Lesetja Kganyago said a further five rate cuts of 25 points each are being considered during the rest of the year.
More measures needed
Carl Coetzee, CEO BetterBond, says the drop in the repo rate is a good start, but the long-term survival of the sector necessitates that government also consider additional measures such as reopening the Deeds Office and also raising the threshold for transfer duty (currently at R1 million) to R3 million for a limited period.
The combined effect of these two measures he explains will go a long way towards restoring consumer confidence in the property market. It will also mean an income for thousands of commission-based estate agents as well as much-needed revenue for government as well as the additional bonus that there will be less of a backlog at the Deeds Office once the lockdown is lifted.
Read more about what Coetzee says here.
Government has to date not responded to the appeal from the broader property sector to list the Deeds Office as an essential service. However, despite this, Clarke advises estate agents to continue with efforts to ensure their online listings of available properties are visually appealing.
The rate cuts to date, and with more possibly on the way, means it is really a good time for first-time buyers to buy a first home as the mortgage rates will be very favourable. This remains a good selling point. During lockdown people have more time to browse online, also to search and view properties that they are interested in. In the UK, also currently under lockdown, viewings of virtual homes have already picked up substantially.
Also read: Virtual show houses the way forward
The road ahead is full of uncertainty, but as our President says, South Africans are resilient. Through innovative thinking, perseverance and hopefully with more supportive measures approved by government, the property industry will also pull through these hard times, as they have done in the past.
