'Property buyers factor rate hikes into pricing'

Many buyers are anticipating an interest rate hike next year, says Auction Alliance CEO Rael Levitt, whose company has sold over three billion rand in commercial property this year alone.

"It seems that the cycle of low interest rates will probably end early next year, which will significantly impact the pricing dynamic in South Africa. Although higher interest rates are anticipated to put greater pressure on households to meet their commitments, commercial buyers don't appear to be deterred by discussions of potential interest rate hikes in 2012", said Levitt.

Of greater concern, according to Levitt, is that South African households are now paying higher prices for fuel, food and electricity - factors which are contributing to the rising inflation rate, therefore forcing interest rates to escalate.

"We are more concerned by the beleaguered residential property market where the household debt to income ratio negatively affects buyer demand", he added.

Levitt believes that the likely interest rate hike will have a direct impact on homeowners. He calculates that for every one million rand of debt, 417 rand a month will be added to the interest charges for every 50-basis-point increase in the prime interest rate.

The SA Reserve Bank has revised its inflation forecast upwards, expecting inflation to breach its 3%-6% target early next year. It anticipates that inflation will peak at 6.3% in the first quarter of next year and average 6% over the year.

The rising inflation is likely to force the Reserve Bank to start hiking rates as early as September while some economists have predicted that rates could rise by as much as 2.5% next year.

"I am ambivalent as to whether the Reserve Bank will increase interest rates so aggressively next year, but either way the property market is going to factor these predictions into their investment decisions right now. Astute buyers realise that real estate is a long term investment and like the market has peaks and troughs in pricing, interest rate cycles change during the life of a fixed property investment", Levitt concluded. - I-Net Bridge

Article from: www.iol.co.za