Reaction to SA interest rate 0,5% increase

The South African Reserve Bank last Thursday increased its repo rate from 7,5 to 8 percent (prime from 11,5 to 12 percent). This was the third increase so far this year with 50 percentage basis point rises in June and August. Property expert’s reaction was generally positive with wide consensus that high anticipatory levels of the rise had already been factored in by homebuyers.

Here are their immediate comments:

Russell Scorer, managing director of Maxprop
"I am still bullish that the property market will not be negatively affected in the long term by the 50 points increase announced. There will be a short term negative effect as people take a breath and analyse the way forward, however, people have short memories so after a brief levelling off of the market we expect sales to continue."

"The residential market will be affected more than the commercial and industrial market as C&I investors plan and strategise their funding according to projected cash flow after expenses including interest."

Samuel Seeff, Chairman of Seeff Property Services:
“This increase is in line with Governor Tito Mboweni’s plans to increase the interest rate at a reasonable but continuous pace. The upward movement will have and has already had an impact on the market, but the increase has already been factored into the market - buyers expect it and have factored it in to their purchasing plans.

“I don’t expect this increase to have any particular impact on the market, and nor do I expect that a further 0,5% increase in December – if indeed there is one – will have a major impact. However, if the rate continues to rise thereafter, it will have repercussions.

Bill Rawson, Chairman of Rawson Properties
“The Residential property will not be fazed by the 0,5% increase. It is widely agreed that this rise was essential as spending has been excessive. It is also agreed that a further rise will be necessary possibly as soon as December. The question now being asked is, when will further increases no longer be necessary, i.e. when will the current cycle peak?

Barry Davies, CEO of Chas Everitt Franchising
“Homeowners will be breathing a sigh of relief at the increase being limited to 0,5 percent. This means that the repayments on existing home loans will rise by only R34 per R100 000 borrowed. However, sellers need to bear in mind that this is the third increase this year, and take the new bond qualification levels into account when setting an asking price.

"At the beginning of the year a R800 000 loan required the buyer to earn around R26 500 a month. Now, with interest up by 150 basis points, the buyer must earn R29 000 a month to buy the same house.

John Loos, property strategist: FNB Commercial Banking:
Undoubtedly, the rate hike is negative for property, but is not expected to be the cause of any property trend changes. This is because the residential property market and its building activity turned weaker a considerable time ago, and I had expected retail property to cool off regardless of rate hiking. The strong industrial and office markets on the other hand will probably be driven by stronger forces in the form of a combination of solid demand growth and a scarcity of vacant space, and I expect these property categories to by-and-large shrug off the current round of rate hiking, and continue to show solid returns.

Dr Andrew Golding CE of The Pam Golding Property Group
“While the increase is unfortunate, it was not unexpected and home owners are urged to take comfort that SA continues to enjoy a stable and sound economy with still historically low interest rates.

”While house price growth has slowed to more realistic and sustainable levels, as an asset class residential property should be viewed as a medium to long-term investment. Budgeting for possible further - and we anticipate moderate - interest rate increases is essential and controlling household debt is important. Those who receive year-end bonuses should consider utilising this or a portion thereof in order to reduce

Herschel Jawitz , CE Jawitz Properties
“The half percent increase has been expected for some time and will have little, if any, sudden impact on the residential market. Consistency of policy from the Reserve Bank will give buyers re-assurance in terms of future predictability. We should however, continue to see the trend of a slowdown in the rate at which house prices are rising as a result of the rate increase. The increase will also continue to put more pressure on estate agencies as the market continues to tighten with record number of estate agencies and agents competing in the market.”

Dave Rogers, MD of Homenet.
“The spring-into-summer home sales surge that usually occurs at this time of year will be dampened by the rise. The fact that it was only 50 basis points is a relief and the market will also be steadied to some extent by the obligatory moves that also traditionally take place at year-end (when people are transferred, for example) but the hike will undoubtedly extend the levelling off in the market that we have been experiencing for some months."

Jo Pelser, MD of Sable Homes
“The interest rate increase, while more moderate than expected, will obviously make all homes less affordable, forcing would-be buyers to either withdraw from the market or scale down their requirements.

"When it comes to new residential developments, though, the concern is that home prices will be even higher next year because building costs are still rising so rapidly. Thus buyers who want a new home generally will have no choice but to go smaller.

This will naturally increase the demand for smaller units, which should benefit developers, but the boost will not be immediate. It takes time for buyers to adjust to the idea of a smaller home, and also for developers to shift gear and start delivering smaller units."

Article by: Nick Wilson - www.businessday.co.za