Drastic interest rate drops now essential, says CEO
At a time when virtually every country in the developed world has reduced its interest rates by ±80%, South Africa is still adopting a conservative, reactionary attitude to rate cuts - and is paying a high price in stagnation for doing so.
This is the view of Mike Greeff, CEO of Greeff Properties.
"It is no secret," said Greeff, "that unaffordable bond loans (and unsuccessful bond applications) are clobbering the residential housing sector - and from what I hear from colleagues in other industries, they are now equally hampered by the lack of finance."
Greeff said that ("although I have never claimed to be an economist"), it seems that every time recently that the rest of world has lowered or increased interest rates, South Africa has "missed the boat" by waiting too long to follow suit.
"I believe we need to look at the current situation, admit that we are on the brink of or already in a recession and take a bold step forward by initiating a 2,5% drop in interest rates soon or at least before October 2009. Only so will we revive the property sector and the economy and if this has inflationary effects, they will have to be lived with but initially this is unlikely."
Greeff warned that it takes four to six months for an interest-rate change to make itself felt in the residential property market.
"It does not bring about a sudden change. Rather, there is a slow turnaround. That has to be borne in mind if the government is serious about stimulating the economy through increased public spending."
Greeff has in another statement pointed out that even though his company deals primarily in the more affluent sectors of the property market only one in two of his clients' bond approvals is now being accepted.
"We have strong evidence," he said, "that people are now simply unable to spend or invest, which means that the economy will continue to shrink. Let us make the courageous move of reducing rates now, at once. We will then have a good chance of seeing a limited recovery in the housing and other sectors this year followed by a more positive upturn in 2010."
Article by: www.greeff.co.za