AA - July 2020

Author: Property Wheel
23 July 2020

COMMENTARY – FURTHER REPO RATE CUT ANNOUNCED

The South African Reserve Bank has announced a further reduction in the repo rate by 25 basis points.
This brings the prime interest rate down to 7%.

Dr Andrew Golding, Chief Executive of the Pam Golding property group says that the Reserve Bank had room to adjust the rate, given that the consumer inflation rate slumped to 2.1% in May – the lowest in almost 16 years (since September 2004). Furthermore, price pressures have been subdued for some time now, with the inflation rate at, or below, the midpoint of the 3-6% target for 18 consecutive months.

“From an overall residential housing market and Pam Golding Properties perspective, we’ve seen the meaningful reduction in the repo rate for the year to date having a positive impact on demand – particularly in the lower price band below R2 million, where we are experiencing a high uptake among first-time and other buyers and investors. However, we are also successfully concluding sales in the middle to upper price bands, especially from R2 million to approximately R5 million.”

Samuel Seeff, chairman of the Seeff property group says this is a welcomed relief for the property market and households.

While welcomed, Seeff remains of the view that the bank should be taking a more aggressive stance with deeper cuts to boost the economy and property market during this unprecedented economic recession. People are not spending and the economy is simply not moving. More needs to be done to give momentum to the economy and property market.

“As expected, property 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“.

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa applauds the MPC for this decision.

“As things stand, their previous cuts have already generated increased appetite in the first-time buyers’ market. This cut will hopefully go a long way to help speed up recovery within the housing market and fuel further growth in the economy.”

“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.”

Betterbond CEO, Carl Coetzee says it may now be more financially prudent to buy rather than rent a home.

He is confident that this latest cut will accelerate the recovery of the property market, which was already showing signs of sluggish growth before the pandemic.

“Already bond applications for July, according to the latest figures (released today), are up 52% year-on-year, and we expect to see more activity, especially from first-home buyers, as they take advantage of the lowest interest rate in decades.”

Herschel Jawitz, CEO of Jawitz Properties says that the latest rate cut will provide some additional support for homeowners in terms of staying ahead of the debt curve and 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 last few year, 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.”

Bruce Swain, CEO of Leapfrog Property Group says:

“Today’s 25 basis point drop in the repo rate brings the interest rate down to the lowest it’s been in decades. A move that’s welcomed by most as it decreases repayments interest bearing debt, bringing much needed relief to struggling consumers, it bodes particularly well for the property sector. The low cost of lending money means it is more possible for more people to enter the market for the first time. For first-time buyers, especially, now is the time to seriously consider getting a foot on the property ladder as it may in some instances actually be cheaper to buy than to rent. What’s more, property has proved time and again to be a resilient investment in times of uncertainty – and ultimately one of the most rewarding savings tools.”

Joff van Reenen, Director of specialist real estate auction company High Street Auctions, says the latest rate cut of 25 basis points announced by the MPC was expected and necessary, given the body blows the economy was taking and would continue to take from the Covid-19 fallout.

“The Reserve Bank has already lowered interest rates by 275 basis points this year to provide relief to indebted South Africans and this additional cut is a step in the right direction to improve liquidity, but there’s no doubt the worst is still to come. The Reserve Bank’s revised GDP growth outlook of -7.3% for 2020 tells us that we’re far from out of the woods“.

“From a real estate point of view, though, four interest rate cuts in a row will have a positive impact on confidence in fixed asset investment because there are few safe haven investments in such volatile markets and with no global playbook for pandemics, property is even more attractive.”

Lew Geffen Sotheby’s International Realty CEO Yael Geffen said these historically low lending rates would open up the real estate market to a massive number of first-time buyers who would not previously have been able to afford their own homes.

“This is extremely positive news and it’ll add impetus and confidence at a time when the country needs it most. This is an investors’ paradise, savvy investors are taking advantage and so they should.

“The latest repo rate cut means the prime lending rate for consumers drops to 7%, which is unprecedented in our time. It effectively means a monthly repayment of less than R7 800 a month on bond of R1 million, which makes the move from renting to owning a no-brainer. Why would you pay someone else’s bond if that’s what you could pay to own your own home?”

“It’s a buyer’s market in South Africa right now, prices are down across the board and despite the uncertainties that we face because of Covid-19, in real estate terms buyers haven’t have a market this good in decades. We’ve already seen significant movement in the market since the real estate sector reopened from lockdown and another rate cut is just the shot in the arm the sector and buyers need,”

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