Rate cuts no quick fix for property market
2009-06-04
THERE is no doubt that lower interest rates will bring some relief to home-owners and borrowers in general, but that the property market could see a recovery soon is not so clear, says Piet van der Walt, MD of Sanlam Home Solutions. He was reacting to Reserve Bank governor Tito Mboweni’s announcement that the repo rate – the rate at which the Reserve Bank lends money to banks – had been reduced by a further 100 basis points to 7,5%. This brings the prime lending rate to 11%, 4,5% lower than it was in December 2008. For the average middle-market home-buyer – a R700 000 mortgage according to Absa’s House Price Index – this means a reduction of close to R2 300 on his or her bond repayments since December last year. “Although this means more money in their pockets, household incomes are still under pressure from rising fuel and food prices and the burden of past interest-rate hikes.” The latest rates cut follows growth data which showed that the South African economy had suffered a sharp 6,4% contraction in the first three months of 2009, confirming the first recession in 17 years. “In view of the contracting economy and many households still under financial strain, any recovery in the housing market could still be some way off as interest-rate cuts will not altogether solve confidence and affordability issues,” says Van der Walt. On affordability Van der Walt says the continued interest-rate cuts, coupled with declining house prices, have paved the way for buyers to enter the market, albeit cautiously. He suggests that buyers see a qualified financial adviser to help them work the purchase of a home, probably their biggest asset, into their overall financial plan. He adds that buyers should shop around and look for bargains before taking the big step because sellers are increasingly having to adjust their asking prices downward.
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