Rate cut a confidence booster

This week’s interest rate cuts should help to underpin the tentative recovery that has been evident in the property market this year.

Indeed, says Richard Gray, the new CEO of the Harcourts Africa property group, the Reserve Bank is to be congratulated on walking the fine line between stimulating economic activity to try to stem the tide of job losses, and not encouraging credit extension in the household sector, which is still heavily debt-ridden.

“And both job creation and debt reduction will of course have a positive effect on the real estate market in due course. But more important at this stage is the message the Bank is sending with this interest rate drop and the positive effect that is bound to have on public sentiment, which is the real key to a healthy property market.”

As it is, he says, SA’s Business Confidence Index was up in August to 87,6 points - from 84,3 in July - its highest reading in two years, “and now there will be a further positive psychological effect from the fact that the prime rate, at 9,5%, is in single digit territory.

“This is the lowest interest rates have been for about three decades and the news could not have come at a better time for property, where the market recovery has started to stutter as a result of very stringent lending criteria, high household debt levels and most of all, a mindset among consumers that the recession was not over.”

Now, says Gray, property sellers and agents can look forward to a satisfactory summer season – traditionally the best sales period of the year – as interest rate savings kick in and consumers start to feel better about their finances, job prospects and the future.

In addition, shrinking debt levels should make the banks feel better about lending, he says, “and then we should start to see the break-up of the most serious current logjam in the market, which is the lack of access to finance, especially in the lower-priced sectors of the market”.

Article from: www.harcourts.co.za