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The latest interest rate hike will hit residential property
markets, with a property expert saying this year's predicted recovery
in the market would be delayed considerably.
The South African Reserve Bank earlier hiked rates by a further 50
basis points, after a brief pause during its January meeting, bringing
the increase since June 2006 to 450 basis points.
"Whereas we had expected rates to move sideways for the entire
2008, a scenario which I believe would have led to a gradual recovery
in residential demand as from mid-year, such a recovery has in all probability
been delayed considerably, and it will take substantially longer for
household confidence to start recovering," said John Loos, a property
strategist at FNB.
Houses prices are already feeling the pinch of higher interest rates,
with the latest Standard Bank property gauge showing prices falling
for the first time in eight years during March, pushing the y/y inflation
to a negative 5.2 percent y/y.
Loos added that the news would raise the possibility of a small period
of national house price deflation, which could have been avoided had
the rates been kept on hold.
When splitting up the market by price category, Loos said that the
combination of rate hiking and high food price inflation would bring
the superior performance of the lower-priced end to a close.
"Lower income groups face the 'double-whammy' of rising interest
rates as well as high food price inflation. Food price inflation affects
lower income households worse because it consumes a higher portion of
their total income," he said, adding that that strongly holiday
property-driven areas were probably also in for a more torrid time until
such time as the interest rate cycle clearly turned.
But the rate hike would boost the rental market, Loos said.
"FNB's rental property barometer has already been pointing towards
a recovering rental market, and I believe that in the current environment
of uncertainty and negativity, the resumption of rate hiking will be
an additional boost for rental demand," he said.
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Newsletter:
12 March to 19 March 2010 - Vaal Triangle, South Africa
