Property market takes heart from Mboweni

THE Reserve Bank’s decision to cut the prime lending rate by 100 basis points is expected to reduce pressure on bondholders, slow property repossessions, release billions of rand back into the South African economy and stimulate spending.

Commercial banks lowered their lending rates to the public, taking the prime rate to 13%, giving them a breather. This means for every million rand that a bondholder owes, they would get back R720 a month.

After the previous rate cut, the further lowering of interest rates by a full percentage point means that mortgage repayments have dropped by a total of 13,4% since December, with the monthly repayment on a R500000 mortgage loan over a 20-year term down by another R360 a month. This translates into a cumulative monthly saving of R912 on a R500000 loan since December.

However, the banks’ tight lending criteria continues to be a challenge in the market even with rates dropping and disposable income rising.

“While we do not expect the property market to pick up significantly right now, the cumulative effect of the rate cuts will be good news over the next 12 months. This would seem to indicate that the property market has now bottomed out and will improve over the next 12 to 18 months,” Brian Falconer, CEO of Colliers Residential, part of the JSE-listed Colliers International property group said.

On the international front Falconer said there were many positive signs to indicate that the world could be on its way out of the recession that had gripped economies since November 2007.

The US Treasury has ring-fenced $1-trillion of real estate toxic debt, effectively taking the debt off banks’ balance sheets, which is expected to kick-start the credit cycle that was so important for mortgages to be granted. The announcement on Monday led to a surge in stock markets worldwide. For the first time in two years, the US property market, which sparked the recession with its sub-prime crisis, was showing signs of recovery, with February home sales figures on the increase for the first time in more than three years.

Absa Home Loans managing executive Luthando Vutula said the latest interest rate cut would bring much-needed relief to financially struggling households.

Article by: Thabang Mokopalene - www.businessday.co.za