The property market will have to get by without the stimulus of a series of rate cuts, as it is unlikely to enjoy much interest rate relief during the course of 2010.

This is the word from Brian Falconer, CEO of Colliers Residential in response to the SA Reserve Bank Monetary Policy Committee's decision to leave the repo rate unchanged. It has now remained unchanged since August last year, at 7%.

This leaves the prime rate at 10,5%, which is still too high to stimulate the property market, says Falconer.

"We can understand the Reserve Bank's reluctance to afford debt-strapped consumers a further 50 basis point cut, but it is disappointing that our interest rates remain so high," says Falconer.

"While there are a few signs of recovery in the property market, notably in upward house prices, other indicators remain negative.

"For instance, the total value of building plans passed by larger municipalities decreased by 23,1%, or R17,4 billion, in the first 11 months of 2009, as reported by Statistics South Africa.

"This is a true leading indicator, and it tells us that consumer and investor confidence in the property market remains low.

"Of particular concern to us is the fact that the largest decrease in approved business plans was for residential buildings, which fell by 38%, or R13.9 billion. This is a clear indication that the market will remain sluggish during 2010 without the external stimulus a rate cut would have provided."

While Falconer has understanding for the Reserve Bank's decision, he points out that there was significant favourable data to have led to a different decision:

At 5.8%, inflation is under control. Specifically, food inflation did not spiral out of control over the Christmas season.

Festive season retail figures were down at their lowest level for a decade, according to preliminary sales data.

While some commentators have viewed this as a consequence of job losses caused by the recession, another view is that people are concerned about incurring additional debt - credit
extension was down 1,59% year on year in November 2009.

This would mean that the Reserve Bank's policies regarding credit have succeeded in their intent.

Despite the record cold snap in the northern hemisphere, oil prices have remained lower than expected, keeping a lid on inflation.

Against this, though, are the looming Eskom price increases and anticipated inflationary inputs from the Soccer World Cup.

"On balance, the Reserve Bank may have made a decision that is in the country's broader interests, but from a property perspective, we would hope for a little more latitude next time around," says Falconer.

"The property market needs positive stimulation, and we hope it will come around later this year. But for now, we have to get by with what we have".

Source: I-Net Bridge