Experts have welcomed the repo rate cut, saying this makes it a good time for would-be buyers to take the leap. By Vivian Warby
Estate agencies, feeling the negative effects of a sluggish economy, have welcomed the Monetary Policy Committee’s decision on Thursday to cut the repo rate by 25 basis points to 6.50%, reducing the base mortgage lending rate to 10%.
They say this makes it a good time for would-be buyers to take the leap. However some believe more could have and should have been done to stimulate the market. But all agencies believe the cut has given a big boost to the buyer’s market.
Mike Greeff, Chief Executive of Greeff Christie’s International Real Estate, believes the cut will encourage “wait and see” potential buyers to buy and that it is to be very well received by every sector of the economy”.
“The drop will have an immediate easing effect on consumer budgets and will make more disposable income available as a cash injection into the economy.
“This rate cut should also encourage business owners, whether big or small to continue this growth trend through job creation and employing more people.
“Prospective buyers will also be more likely to obtain funding from lending institutions as the government looks to jump-start the economy. This is not a bad strategy at all, as it sends a very positive and proactive message to foreign investors and governments that South Africa is filled with potential and ripe with investment possibilities.
“The decision will no doubt encourage more people who had been adopting a “wait and see” mentality to become buyers.”
The repo rate cut will lower monthly bond repayments and make home ownership more affordable at a time when household budgets are under severe pressure, says Rudi Botha, CEO of bond originator BetterBond.
For existing homeowners: A saving of R16 a month per R100 000 borrowed. On a R1m loan, for example, the saving would be R166 a month and potentially almost R40 000 over R20 years.
For first-time borrowers: You will now find it easier to qualify for a loan with the gross household income requirement for a R1m loan falling from R33 000 a month to R32 000 a month.
Regional director and CEO of Re/Max of Southern Africa, Adrian Goslett agrees. “With a 3.2% decline in our GDP for the first quarter of 2019 and with inflation being contained within the mid-point of the MPC’s target range, there really could not have been a more opportune time for the MPC to stimulate our economy and provide some much-needed economic relief by announcing a cut in interest rates at this meeting.”
Goslett says it is an encouraging announcement for the housing market.
He believes “there truly is no better time to enter the real estate market than right now. The property market works in cycles. Currently, we are experiencing negative house price growth in real terms. But, in the long term, market conditions will improve to yield positive house price growth again. Buyers who purchase property now are therefore likely to see much higher returns in the long run.”
Samuel Seeff, chairman of the Seeff Property Group agrees.”We have not seen any real sign of the economic improvement or uptick in property sales that was expected following the elections, despite the phenomenal buying conditions. There is now a huge opportunity for buyers. Stock levels are up considerably. Prices are flat and coming down in many instances while sellers are negotiating, and the banks prepared to give loans. This is the time to buy.”
Seeff says further that the market seems to be in a similar phase to the 1992-1993 period, just before the 1994 elections when there was a great deal of hesitation. Right now though, the interest rate is considerably lower. “Those who bought during that 1992/3-lull will tell you that they bought at just the right time and have benefited greatly from capital value growth.”
However Seeff, while welcoming the decision to cut the repo rate believes 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,” he says.
Sentiment remains worryingly low and Seeff says the market needed a much stronger message.”Consumers are struggling and it has been a tough year with rising costs and a weak economic and growth climate. We need real reprieve of some of the economic pressure faced by consumers to free up more disposable income and entice them back into the property market in numbers.”
Dr Andrew Golding, Chief Executive of the Pam Golding Property Group, agrees that the reduced repo rate, albeit modest, serves to send a positive message to investors, buyers and those with existing mortgages.
“It is signalling that the time is ripe for early adopters to capitalise on the current opportunities presented to get into the market – particularly first-time purchasers, as mortgage lending remains competitive in the current market, which still favours buyers.
“Given the benign inflation rate environment and subdued economic growth, with a somewhat stronger rand and the likelihood of the US Federal Bank reducing interest rates on the horizon, it was timeous for a cut in the interest rate. It is anticipated that this will help create stimulus for the economy and property market, as well as a confidence boost for consumers in general.
“Reviewing the latest Pam Golding Residential Property Index, we already note continuing signs of a gradual recovery in the SA housing market…. and 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.”
Herschel Jawitz, CEO of Jawitz Properties, says that the interest rate cut may start to turn the tide of consumer confidence for South African consumers.
“The key to the recovery of the residential property market is consumer confidence. In the current economic, social and economic environment, people are not thinking 20-year mortgages and, as a result, potential buyers have been adopting a wait and see approach to buying property”.
“With a petrol price cut last month and now a rate cut, however small, consumers may start to feel a little better about their future financial well-being, which is critical from a consumer confidence point of view.”
He however believes the recovery in the residential market is going to be gradual, especially in the sectional title market where there is still a significant amount of new properties coming onto the market.
However like all agencies he believes buyers have “an outstanding window of opportunity to get into the market that may be close to bottoming out. For now, the market remains very much a buyer’s market but timing any market is always difficult and this residential market is no different”.