The decision by the Reserve Bank to keep the repo rate unchanged at 8.25% (11.75% prime rate) is hugely disappointing for the property market and economy, comments Samuel Seeff, chairperson of the Seeff Property Group.
The decision is out of step with the economic needs of the country, and perhaps a little tone deaf in terms of the plight of consumers and homeowners, especially since it was a split decision by the MPC members, he says further.
In some instances middle class homeowners have been paying up to R1,500 to R3,000 per month more on their home loans on top of other above average credit and living cost hikes. The burden on consumers and the economy is too high.
The higher inflation is not due to overexuberance in the economy or overspending by consumers. The only real effect of the higher interest rate has been that it has stalled the economy, and pushed costs up for consumers, essentially punishing consumers.
Seeff says the interest rate has now remained unchanged for well over a year. It is higher than what it was following the 2007/8 Global Financial Crisis. It has resulted in significant value erosion in the property market, which is down by about 25%, while price growth has stalled to below 1%.
The high interest rate and living costs are especially affecting first-time buyers who are unable to afford homes. Additionally those with home loans are increasingly falling into arrears as the banks are reporting increasing numbers of distressed homeowners. This is concerning for the market and economy.
Nonetheless, Seeff says the market remains positive that an interest rate cut must now come soon as there is more than enough reason for it. This is good news for buyers who should take advantage of the flat prices while they can in view of the outlook of rate cuts ahead.
The slower market means buyers are facing less competition right now, and could secure a good price. Despite a mild tightening, mortgage lending conditions also still remain favourable for the market, and for buyers.
Investing now means buyers can benefit from the savings once the rate comes down. Additionally, once the market rebounds, and more buyers start competing, it will likely result in higher property prices and value appreciation for those who have bought now.
Seeff concludes that a growing economy and property market is vital. There is a lot of positivity about the GNU (Government of National Unity), and that better times are just around the corner. If we look back at how well the economy started growing when the interest rate was about 2% lower, it gives hope that we can get back to that.
Writer: Gina Meintjes
