Hike to destroy housing

A premature interest rate hike will undermine confidence in the already shaky real estate market, according to Seeff Chairman Samuel Seeff. Seeff made this statement amidst growing fears of a looming rate hike sooner than initially anticipated on the back of rising living costs and inflation.

"The property industry is facing some of its toughest trading conditions in close to three decades," comments Seeff. "Supply is driving the market resulting in downward pressure on prices, low trading volumes, long sales cycles and shaky confidence in the market. The lag in clearing distressed properties out of the market also continues to impede recovery," he adds.

Although the latest data points towards higher economic growth than the predicted 3.4 percent for this year, Seeff believes the growing pressure on inflation (up to 4.2 percent in April) will no doubt weigh heavily when the Monetary Policy Committee meets on 19 July.

"With inflation predictions now at close to six percent by the end of 2011, a hike in the base interest rate is inevitable," he continues.

"The biggest concern for real estate professionals is the continued high household debt ratio and the growing number of debt defaulters, despite lower interest rates," continues Seeff. "This", he adds, "continues to impact on the ability to take up mortgage credit and move towards a position where the market starts buying in adequate numbers again."

The decline in house prices and the sluggish buy data is widely reported.

"After the phenomenal house price growth of 2003-2007 and given the onset of the global financial crises," adds Seeff, "a market adjustment was a natural consequence. House prices are not going to get much better than what they are right now and we need buyers and investors to show confidence and start buying so that the market can start moving again."

"We understand that we cannot stave off an interest rate hike for much beyond the third quarter of this year, but a premature hike would undermine the already shaky confidence in the housing market."

"We need to at least see an increase in sales volumes before we can absorb a rate hike," concludes Seeff.

Article by: www.iafrica.com

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