Rate hike to hit property market

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.

I-Net Bridge

Article by: Tiisetso Motsoeneng - www.iafrica.com