Hard hit property market calls for a pause in rate hikes

Questionable CPIX statistics strengthen the case for maintaining or even decreasing interest rates at the next Monetary Policy Committee (MPC) meeting in August. Such a move would ease pressure on bond repayments for hard hit homeowners.

Gerhard Kotzé, CEO of the ERA South Africa property group, says that based on the debate surrounding the CPIX stats, there is seemingly a very real possibility that bond rates are unjustifiably high.

Referring to the recently released Investec Asset Management statement suggesting that the “real” CPIX should be about 2% to 3% lower than the official numbers provided by Statistics South Africa, he says: “While not professing to be economist, I find it worrying that bond rate levels may be too high based upon dubious calculations in respect of the CPIX.

“The property market may be taking unnecessary strain as reflected in fewer house sales, softer prices and an increase in the number of property repossessions as owners battle to meet their mortgage payments.

“While it’s generally accepted that the property market needed to take a breather after hitting growth rates of up to 30% pa, the possibility of overkill of one of the key drivers of the overall economy has to be avoided.”

Kotzé adds that economists have pointed out that inflation has less to do with consumer spending and credit advancement than it has to do with uncontrollable “imported” inflation linked mainly to the recent record oil prices.

“Also, as I understand it, while the growth in credit advancement is still too high, that apparently has more to do with business borrowing than consumer spending and debt and indeed the likes of car sales and other retail spending trends underline the fact that consumers have already tightened their belts.

“Realistically it’s probably too early to expect interest rates to be lowered but the mood of the country and the confidence of the business and consumer sector would be considerably boosted if interest rates were, at the very least, kept at the same level at the next MPC meeting in August.

“Adding further support for this position is the easing of the oil price which most economists agree is at the core of the inflationary pressures South Africans - and consumers worldwide - are experiencing.

“This should surely give Governor of the Reserve Bank Tito Mboweni and his Monetary Policy Committee members pause for thought.”

Article By: www.era.co.za