Low interest rates benefits SA Property Market

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Reserve Bank Governor Gill Marcus said the committee continued to assess the monetary policy stance to be appropriately accommodative, given the persistence of the negative output gap. Reserve Bank Governor Gill Marcus said the committee continued to assess the monetary policy stance to be appropriately accommodative, given the persistence of the negative output gap.

In light of the current domestic and global outlook, South Africa’s Reserve Bank left its benchmark repo rate unchanged at 5% after the announcement was made at the second Monetary Policy Committee meeting of 2013.

Struggling South African consumers, especially homeowners have been urged by major SA banks to take advantage of low interest rates to accelerate their debt repayment.

Reserve Bank Governor, Gill Marcus said that the prime lending rate would remain unchanged at 8.5%, a decision met with very little surprise by those within the real estate sector.

The governor said the committee continued to assess the monetary policy stance to be appropriately accommodative, given the persistence of the negative output gap.
 
On inflation, the bank’s forecast showed a slight deterioration in the inflation outlook for 2013 compared to the previous forecast. The forecasts incorporate, among others, the lower electricity price increase of 8% that the National Energy Regulator of SA granted power utility Eskom. Eskom had sought a total 16% tariff increase.
 
Inflation is now expected to average 5.9% in 2013 and 5.3% in 2014, compared to the previous forecasts of 5.8% and 5.2%. However, inflation is expected to temporarily breach the upper end of the bank’s target range (of between 3% and 6%) in the third quarter of 2013 when it is expected to average 6.3% and then moderate to 5.2% in the fourth quarter.
 
Marcus said the deterioration was largely due to the depreciation of the rand and higher petrol prices, which more than offset the impact of lower electricity prices. Core inflation is expected to peak at 5.1% in the second quarter of 2014.
 
Adrian Goslett, CEO of RE/MAX of Southern Africa said that with the large majority of South African consumers and potential homebuyers dependent on loans or bonds for finance when purchasing a property, a change in the prime lending rate could have a massive impact on the property market and especially consumers who have already purchased a home. An interest rate increase, along with the recent petrol hikes and rise in housing utility costs, would have a substantial negative impact on the recovery of the economy and the property sector.

But, John Loos, FNB household and consumer sector strategist, argued that an unchanged interest rates decision could have differing impact on the housing markets; citing that it could be negative in terms of contributing to a debt-service ratio increase in 2013, given the household credit growth which has been outgripping disposable income growth.

According to Loos, secondly it could positively contribute to housing demand and slightly higher house price growth than recent levels.
 
Since the peak of the boom period, the prime interest rate has been reduced by 5.5%, making bonds more affordable and opening up the market to more aspiring homeowners.

Goslett points out that the decision to keep the interest rate low and stable will continue to give potential buyers more opportunity to get into the property market, and it will also allow existing homeowners the ability to reduce the term of their loan by paying it off faster, without severely harming their monthly budget.
 
South African consumers should make the most of current investment conditions within the property market. The economic environment within the property sector favours buyers and many would be surprised at the opportunities that elements, such as the low interest rate and affordable pricing, have created. 


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