Repo rate hike bad news for SA Property Market

The Reserve Bank's hiking the key interest rate on Wednesday,the 29th of January will hit property sales, particularly in the residential segment, real estate companies said while expressing disappointment at the move.

Reserve Bank governor Gill Marcus announced an increase of 50 basis points to 5.5% per annum in the repurchase rate, due to a weak rand and inflationary risks.

Realty firms and consultants hoped however that this would be the last round of monetary tightening by the Central Bank’s Monetary Policy Committee.

The Reserve Bank’s decision to raise the interest rates for the first time since July 2012, says Tony Clarke, Managing Director of the Rawson Property Group has come as a shock and bodes negatively for the property market as well as for bond mortgagors.

“In my opinion,” says Clarke, “it is the Reserve Bank’s obligation to bring about economic recovery and to ensure that this recovery is here to stay – and this should happen before increasing interest rates. With this new announcement, growth projections will have to be assessed to below the current 2% mark.”

Seeff chairman, Samuel Seeff reacted with shock and disappointment to the announcement.
For the first time in five years, we have seen more balance in the housing market with buoyant demand and increased sales volumes in the major metropolitan areas. This hike is premature and is not related to the excessive demand in the market, he says.

It is unlikely to make a real difference other than to cool the economy and impact on the current positive sentiment in the housing market.

We would have liked to have seen an attempt on the part of the Reserve Bank to stave off a rate hike in the short-term given that stability is vital right now, he adds. This decision is likely to have an unexpected effect on the psyche of the buyer and is sending the wrong message to the buying public, says Seeff.

Sentiment is a vital driver of the economy and property market and we have therefore encouraged stability. As we have seen over the past year, positive sentiment has driven more demand and more balance in the market. This announcement could not have come at a more inopportune time, he adds.
The rate hike effectively reverses the 50-point reduction of July 2012 with little real financial impact as it takes bond repayments back to the pre-July 2012 levels. Based on a bond rate of 8,5% and a 20-year repayment period, a home owner with a bond of about R800,000 would see his/her repayment increase by R255 per month from around R6,934 per month to R7,189.

While inflationary concerns and global economic impacts remain in the spotlight, the Monetary Policy Committee’s stance to increase the repo rate stable was unexpected, particularly given the sluggish economic growth currently experienced in South Africa, according to Dr Andrew Golding, chief executive of the Pam Golding Property group.

Article from: www.sacommercialpropnews.co.za/

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