Unhappiness over static interest rate

The reluctance on the part of the South African Reserve Bank to drop the interest rates by a further 0.5 percentage point will be seen by estate agents as evidence that the government's much-publicised commitment to home ownership is a little shallow, says Mike Greeff, chief executive of Greeff Properties.

"We had all come to expect a further drop in interest rates because inflation is under control and it was repeatedly said the economic recovery needs further stimulation," says Greeff.

"Now these hopes have been dashed.

"Recent surveys have shown that 80 to 90 percent of lower-income earners are still renting and almost an equally large percentage of young adults are living with their parents, relatives or friends in conditions that are often seriously overcrowded.

"Other studies (notably one from Australia) have, however, shown that once a nation's populace adopts the home-owning mindset, home-buying speeds up exponentially year by year.

"We were just starting to see this happen in South Africa and it was beginning to look as if the banks understood and would support the drive towards home ownership.

"However, this inability to cut rates further, coupled to the very severe credit restrictions imposed by the National Credit Act will deal the housing sector a blow."

Greeff believes the monetary policymakers missed a good opportunity.

"Their action appears to be in line with the traditional approach of the Reserve Bank, which, although commendable and safe, is now frequently seen as too conservative.

"Many estate agencies had hoped that the new management on the Reserve Bank team would, at least in part, adopt the stimulatory measures being implemented in the US.

"If there is any possibility that the next Monetary Policy Committee meeting might adopt a different approach, hints from the Reserve Bank about this should be given as soon as possible so as to keep the residential property marketing ticking over," says Greeff.

Lanice Steward, managing director of Anne Porter Knight Frank, says nine out of 10 estate agencies are disappointed that the committee decided to leave interest rates unchanged.

"If you arbitrarily divide the market into two sections, lower and upper, it becomes clear that the lower section, buying in the R250 000 to R800 000 bracket, had come to expect a further drop and a more helpful first-time home buyers" package from the government.

"This is because of the serious shortage of housing in this sector and the increasingly high rentals with which people are faced.

"For more affluent people, the stringent conditions of the National Credit Act have reduced property sales by almost 50 percent (in comparison with the peak of 2007), but lower interest rates would have given the now slowly recovering market a real boost.

"Here, too, there is now a tendency among young upwardly mobile people to postpone buying homes and instead to rent. This sector of the market all too easily spend 100 percent of their income each month without making any provision for savings or home-buying."

She says home ownership should be seen as the most effective and, in most cases, the only way in which ordinary people can build up savings.

"We can only hope that the long-awaited drop in interest rates for which so many of South Africa's economists have been asking will take place in the next round of monetary policy reviews," says Steward.

Weekend Property suppplement (Sunday Argus)

Posted at 09:15AM Aug 02, 2010 by Editor in Home Loans  |  Comments[1]