PUBLISHED 6 MAR 2010
The National Electricity Regulator’s
announcement of approval for a 24.8% electricity price hike for Eskom
will mean higher home loan rates in the medium term and homeowners
should explore all their options to soften the blow, says the CEO of
the ERA South Africa property group, Gerhard Kotzé.
“The announcement will undoubtedly be inflationary. Clearly the
so-called ‘soft’ interest rate cycle is about to change and existing
homeowners should plan their finances and look at their options
accordingly,” he says.
“Moreover, I agree with FNB economist John Loos that homebuyers should
build higher interest rates into their planning, allowing for further
cost increases as water and other utility providers follow Eskom’s lead
in demanding price hikes to fund infrastructure maintenance and
roll-out costs.
“One option available to existing homeowners in good standing with
their lenders is to fix their home loan rates. Typically this would be
at a slightly higher rate than the current rate, with the borrower
effectively paying a premium for the privilege of a known cost going
forward.
“Homeowners who opt for this route, where their bank permits it, would
therefore take the initial ‘pain’ of higher monthly payments upfront,
but benefit later when interest rates ‘catch up’ and then exceed their
fixed rate.”
The basic message, says Kotzé, is that the days of relatively cheap
energy for homeowners are over. The effects will undoubtedly be seen in
different ways, including a shift in home demand down the price ladder,
an even stronger swing to smaller homes, energy saving provisions in
new residential developments and retrofitting en masse of existing
homes with energy saving devices.
“And it’s unfortunate that the tariff hike announcement was not
accompanied by clarity on Eskom’s electricity supply connection policy
in respect of new residential developments. Given the lead times for
such developments and uncertainty surrounding electricity connections
this aspect requires urgent attention.
“Numerous residential developments were put on hold or mothballed
because of the uncertainty in this respect and while that may have
suited circumstances last year when consumer demand was low, the
picture could change drastically as the market continues to recover and
even lead to a shortage of housing stock.”
Source: Property Trader
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