Property companies welcome suprise repo rate cut
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JOHANNESBURG - Property companies on Tuesday welcomed the surprise "bold" move by the SA Reserve Banks's Monetary Policy Committee to (MPC) to cut the repo rate a further 100 basis points cut to 4.25 percent due to the Covid-19 pandemic.
This would result in a further reduction of the prime rate to 7.75 percent, which is the lowest prime rate since the four months - July to October - in 1973 when the prime rate was just 7.5percent.
The move by the South African Reserve Bank (SARB) comes less than a month after the bank's 100 basis points rate cut last month as it tries to stabilise the South African economy.
SARB Governor Lesetja Kganyago said on Tuesday that the bank expected the economy to contract 6.1 percent this year.
He said the MPC had decided to cut rates again after President Cyril Ramaphosa announced an extension to the South African lockdown by two weeks.
The property sector said the repo rate cut would provide relief for households and small businesses.
“I think it was a timeous decision and I applaud the committee for taking such proactive measures to help consumers and small businesses survive within the current circumstances,” said Adrian Goslett, the regional director and chief executive of RE/MAX of Southern Africa.
“Though this decision will have negative consequences for the rand, I believe that the upside benefits outweigh the downside risks that this cut poses for our economy. The immediate relief this decision provides to both consumers and businesses is exactly what our country needed at this time,” he said.
“South Africans would be wise to use this cut to pay off debt as quickly as possible. If you can afford to do so, keep your repayments at the same value before the cut. If you were paying R10,000 per month, then continue to pay this amount so that you can shorten your loan term and save on interest charges. If you cannot afford to do this, then use the money you save on interest charges to avoid purchasing items on credit and getting yourself into further debt,” Goslett said.
Dr Andrew Golding, the chief executive of the Pam Golding Property group, said the repo rate reduction would help ease economic pain – particularly after lockdown restrictions were lifted.
He said the substantial cumulative easing in interest rates thus far this year, 225 basis points in total, was now offering significant relief to homeowners and indebted households.
"While this will not offset the negative effects of a total loss of income for those not able to work from home or those not designated as an essential worker, the MPC’s latest move will go some way towards easing the pressures on the residential housing market in regard to those with mortgages or seeking finance in order to acquire a home – helping to pave the way for recovery once the lockdown restrictions begin to ease and economic activity begins to recover," Golding said.
He also called for the reopening or at least partial reopening of the Deeds Office when lockdown eased to enable transfers to be processed regarding successfully concluded sales transactions, "which would aid indebted, distressed sellers already severely impacted by the current economic recession".
Samuel Seeff, the chairman of the Seeff Property, said the two rate cuts provided a saving of about 20 percent for property buyers and was a significant boost for demand.
He expected the property market would emerge from the Lockdown with a level of pent-up demand, but still mainly in the primary residential market to around R1.5 million and up to R3m in some areas.
"Above that price level, especially where buyers are not so reliant on mortgage finance, Seeff believes that activity will remain muted," the group said.
Harcourts South Africa said it welcomed this decision as it made buying a home more affordable and boosted consumer confidence, which translated into increased economic activity in these uncertain times.
"The man on the street is certainly bearing the brunt of an economy under serious pressure and as the long term affects remain unclear at this point this announcement today will help many consumers breathe a sigh of relief and help mitigate the ominous situation we face from a financial perspective," it said.
BUSINESS REPORT ONLINE