This week’s shock decision by the Monetary Policy Committee to raise the repo rate by 50 basis points is obviously not good news for the property market which, the experts say, will now go into "survival" mode until rates start to come down again
Berry Everitt, MD of the Chas Everitt International property group, says: “The decision to raise the repo rate to 11,5 percent will have a dreadful effect on consumer confidence and a major negative effect on the real estate market.
“Homeowners are already battling to deal with higher loan repayments, higher fuel and food prices, higher municipal rates and the threat of higher electricity charges and for many, this might just be the last straw as it will push the nominal home loan interest rate to 15 percent.
“We thus expect a steep rise in the coming months in the number of foreclosures and properties taken into possession by the banks, with those in the middle and lower income groups being especially vulnerable to losing their homes.”
In addition, he says, the increase will no doubt cause vehicle and furniture sales to drop further, manufacturing activity to slow more and the economic growth rate to fall, signalling a sharp fall-off in job creation and, ultimately, in home sales and property price growth.
However Dr Andrew Golding, CE of the Pam Golding Property Group, says: “We tend to forget that the residential property market is cyclical and that from a global perspective we need to take comfort in the fact that we are not faced with a sub-prime housing situation like America.
”In a dynamic economy such as ours there is always movement of people and those who require houses, plus there is still a pent-up demand for homes particularly among black buyers. The recently announced growth in employment is a positive factor and one that impacts favourably on the demand for homes. There are those being transferred on business, new contract professionals moving in and as a result not only those seeking to purchase homes but also homes to rent - the latter being a sector of the market currently experiencing growth.”
He also notes that the higher interest rates and the electricity shortage has resulted in the curtailment of development of homes to a large degree, a factor which will put pressure on the supply of houses and could bolster residential property values.
”We should also not lose sight of the fact that residential property remains a sound long term investment. Hopefully we will see a flat trend in regard to interest rates for the remainder of 2008, however those homeowners who are hard-pressed in terms of making their monthly repayments are urged to do their utmost to ensure that they retain what for most people is their greatest asset and one which will over the medium to long term continue to appreciate in value.”
Nonetheless, says Gerhard Kotzé, CEO of the ERA South Africa property group, the timing of the increase is difficult to understand. "There is more than enough evidence that the economy is already slowing under the influence of rising costs, high inflation, high interest rates and petrol price increases.
“Statistics show that credit advancement is down, money supply is slowing and demand for durable and non-durable goods is declining, and as for the property market specifically the pain of high interest rates has already been felt and sales and volumes are markedly down.
“Sellers countrywide are adjusting their asking prices downwards to compensate for higher interest rates so taking the inflationary element out of the market to a very large extent. This is reflected already in the first real negative growth in home prices in eight years recorded in the latest reports by the leading banks.”
Jeanne van Jaarsveldt, marketing and finance director of RE/MAX of Southern Africa, also believes the increase will further trim the already shrinking volume of residential property sales.
What is more, he points out, the ninth interest rate increases in a period of less than two years will make it more difficult for landlords to achieve rental to bond instalment parity and this situation will be exacerbated by the impact of the new municipal rates structures.