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Interest rate cut good news for property market

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Interest rates have been cut for the fifth time this year in a record-breaking streak that is fuelling activity in the country’s property market.

It is now almost certainly cheaper to buy a home than rent in many areas. The Monetary Policy Committee announced on Thursday afternoon that the interest rate will again drop by 25 basis points, taking the repo rate to 3.5% and leaving the prime lending rate at 7%.

Already, the previous cuts have generated increased appetite in the first-time buyers’ market, says Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa. “This cut will hopefully go a long way to help speed up recovery within the housing market and fuel further growth in the economy.” 

At the current interest rate, it is now possible that one’s monthly repayments on a home loan could be less than one would expect to pay in rent for the same property. At the rate of 7%, repayments on a R1 million home loan taken over 20 years would amount to just R7 753 per month. In many suburbs, Goslett says that works out to be less than one would expect to pay in rent on the same home.

“For those who can afford to do so, there really has never been a better time to enter the market than right now. I would just advise buyers to leave room in their budget for if and when the interest rates return to pre-lockdown levels.”

While acknowledging that affordability is still an issue from an income stability perspective Tony Clarke, managing director for the Rawson Property Group says those with steady employment and a good financial track record can get “extraordinary” value for money these days.

Lenders are extremely motivated by the current rates and offering “amazing” rates to qualified buyers. Furthermore, properties are exceptionally well priced after an extended period of slow growth, he says. “There has seldom been a better time to invest in property, whether as a first-time buyer or a seasoned investor rounding out a portfolio.”

Clarke adds that foreign investors are also finding great value in South African property, with the weaker rand creating unbeatable opportunities for those with stronger currencies.

Herschel Jawitz, chief executive of Jawitz Properties, says Thursday’s rate cut will provide some additional support for homeowners in terms of staying ahead of the debt curve. It also continues to offer the best buying opportunities for buyers in almost 20 years.

“With interest rates at historic lows and property price growth barely keeping up with inflation over the past few years, the current market is one to seriously consider if you are a buyer who has a secure monthly income and has a long-term view of where you want to live or invest. The cumulative effect of the interest rate cuts has reduced monthly payments by almost 20% from where it was in March this year.”

Despite the state of the economy, bank lending continues to remain positive in terms of approval rates and loan to values.

“Overall, the market conditions remain firm and there is no doubt that the market has seen better than expected buyer and tenant activity post-lockdown than expected,” Jawitz says agreeing that the rate cut may also make renting more expensive than repaying a mortgage.

The meaningful reduction in the repo rate for the year to date has had a positive impact on demand for property – particularly in the price band below R2 million, says Andrew Golding chief executive of Pam Golding Properties. Apart from a pent-up demand as a result of the lockdown, home buyers are responding well, not only to the significantly reduced interest rates, but also to the opportunity to capitalise on the zero transfer duty payable on properties selling for up to R1 million.

He adds: “With national house price inflation continuing to decelerate, easing to 2.4% in June from 2.6% in the first quarter of 2020, we are optimistic that savvy home buyers and investors will continue to take advantage of the access to finance and value for money on offer in what is currently a buyer’s market.” 

Samuel Seeff, chairman of the Seeff Property Group says the property market has rebounded on pent-up demand under Level 3 with keen buyers who had been waiting to take advantage of the favourable conditions eager to physically view properties and get their offers in.

“For many areas, it has been the busiest period this year, and in some instances, activity has been on par with the same period last year, but it is vital that we keep the momentum going.” However, he cautions buyers against being unrealistic with their offers as, although there is good demand in the market, there are very few desperate sellers. “Most sellers are prepared to wait for the right price.”

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