Stable interest rate positive start for SA’s property sector
Reserve Bank Governor Lesetja Kganyago made the announcement in Pretoria following a three-day MPC meeting.
The Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) on Thursday decided to retain the repo rate at 5.75%, in what could be interpreted as a positive start for the country's property market.
This also meant that the prime lending rate, the interest charged by banks to consumers, will remain steady at 9.25 percent.
The decision is a welcome start, specifically acquisitions financed partly through debt instruments. 2015 promises to be another year of the survival of the largest funds in the commercial property space.
Governor Lesetja Kganyago made the announcement in Pretoria following a three-day MPC meeting. He said that the rand has been affected by domestic factors including the rolling power blackouts by Eskom.
In September, the repo rate remained unchanged at 5.75 percent, after it was increased by 25 basis points in July from 5.5 percent.
Chief economist at Nedbank, Dennis Dykes, said the real change since the last Monetary Policy Committee (MPC) meeting was indeed the collapse in the oil price, which translates to a collapse in the petrol price – which is expected to come down even further in coming days.
According to Dr Andrew Golding, CEO of the Pam Golding Property group, lower inflation and a delay in the timing of the next interest rate hikes is obviously good news for the local residential property market.
In recent years, growth in house prices has outstripped growth in personal disposable income – resulting in a modest deterioration of housing affordability.
"Lower inflation and a subdued interest rate cycle will bolster household disposable income, helping to offset this deterioration to some extent," says Golding.
Adrian Goslett, CEO of Re/Max, says the interest rate remaining at its current level and fuel prices declining will ease financially burdened homeowners to some degree and allow them to pay down debt or pay additional money into their bond accounts.
Prospective buyers should remain cautious and budget carefully, allowing for the possibility of a rate hike, says Seeff chairman, Samuel Seeff.
"As is customary during the early part of the year, increases in basic living and utility costs associated with home ownership too is unavoidable, he says.
Seeff concluded that buyers should also be mindful that Finance Minister, Nhlanhla Nene, signalled a warning late last year that the 2015 budget, due at the end of February, is likely to include tax hikes.
FNB CEO Jacques Celliers also advised that consumers have been cheered by lower fuel prices and we are seeing lower inflation on the horizon. We can expect further reductions in fuel prices and inflation during February, but this does not mean we should throw caution to the wind.
The announcement comes a day after the US Federal Reserve Bank also held its benchmark interest rates steady. It is expected that US interest rates will ‘normalise’ to a higher level in the second half of 2015.
