1% hike in interest rates likely next week

Rawson MD says government should be using its reserves to limit rate rises

It is now probable that next week’s meeting of the SA Reserve Bank will result in a further interest rate hike – and, says Tony Clarke, MD of Rawson Properties, this time it is likely to be a full 100 base points (i.e. 1%) taking the interest rate to 15,5%. This, he says, is the inevitable consequence of the current 9,4% CPIX inflation rate.

“That,” says Clarke, “will be a blow to many home owners who are already struggling to pay their bonds. It will also deter investors, some of whom are now pulling out, and convince many first-time home buyers that they now have no hope of getting onto the property owners’ ladder.”

Giving just one example of how such a rise would effect bondholders, Clarke said that on a R1 million bond many people are now paying close to R13 000 per month. A 1% rise in the interest rates will make it necessary for them to find an extra R750 per month – very substantial sum.

“There is,” says Clarke, “a growing suspicion that the consumer is bearing the full burden of the government’s mistakes made a decade ago when they totally failed to appreciate how fast energy demands would rise. The load shedding and cut-backs on electricity supplies are a major contributing cause of the current high inflation rate, now over 9%. Many industry leaders feel that the government should be using its reserves to bail out Eskom, rather than again hitting the consumer on whom, in the long run, the entire economy depends.”

Apart from its reserves, said Clarke, the government should now be drawing on money allocated to government departments and municipalities which has not been spent.

“We know that some of the money has not been used. Surely, therefore, it should now go to help Eskom in this time of national crisis.”

Asked if the much discussed rise in rentals, that is expected to follow the interest rate rise, will not at least partially compensate for the higher bond payments, Clarke said that most tenants are on fixed contracts and rent escalations traditionally kick in only a year or two after the contract was signed.

“In any case,” he said, “it is not the investors, it is the potential home owners at the bottom of the market that the government should be concerned about and as I have indicated these are rapidly abandoning their plans to buy, even in the lowest priced property arena.”

Article by: www.rawsonproperties.com