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Unchanged interest rates STILL good news for property buyers

Published Jan 21, 2021


South African property is still ripe for the picking following Thursday’s Monetary Policy Committee announcement that interest rates will once again remain stable.

The committee has kept the repo rate at 3.5% and the prime lending rate at 7%. While property players feel that conditions are still positive for buyers, another rate cut would have been welcomed.

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“The property market is very much active at this time but many buyers and sellers are struggling to make ends meet within the current economy, which puts downward pressure on asking prices,” says Adrian Goslett, chief executive of Re/Max of Southern Africa.

“An interest rate cut could have helped alleviate some of this financial pressure, allowing room for property prices to strengthen.”

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Andrew Golding, chief executive of the Pam Golding Property Group agrees, saying that another cut would have been a “bonus” for aspirant first-time homeowners and existing owners with mortgages. And there was “certainly a compelling case for a further reduction”.

That said, the decision to keep the repo rate unchanged was anticipated, and he believes the MPC erred on the side of caution. “Rather than cutting interest rates further, the Reserve Bank may opt to keep rates lower for longer...”

He says the residential property market has since June/July last year (2020) been buoyed by first-time and other home buyers seeking to capitalise on the record low interest rates that have been coupled with value-for-money opportunities in the current economic environment.

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“It was further boosted by changing dynamics in the marketplace as buyers adjust their lifestyles and residential property preferences to suit the ‘new normal’ resulting from the pandemic.”

Property360 home loan expert Celestine Williams says they have seen a sharp increase in the number of bond applications over the past few months following the steady decrease in interest rates. “In fact it has more than doubled.”

The biggest number of bond applications fall under the R3million mark “but we are also getting increasing applications in the luxury market as well”.

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There is no doubt that the lowering of the interest rates, and the steadying of them today at this lower rate, will continue to bolster the property market, she adds.

Citing ooba statistics, Golding notes the volume of applications from first-time buyers in Q4 2020 increased by 36% from the same period in 2019.

“Even the top end of the market has shown some positive activity and signs of recovery, albeit dependent on realistic, market-related pricing by serious, motivated sellers.”

Keeping the repo rate steady at 3.5% will continue to create a favourable lending environment for South Africans wanting to buy their dream homes, says Carl Coetzee, chief executive of BetterBond, welcoming the MPC’s decision, which will keep the prime lending rate at its record-low of 7%.

“Five consecutive repo rate cuts last year set the scene for the housing market’s significant recovery, and now homebuyers will have a further opportunity to apply for a bond in 2021 at this competitive rate.”

It is also possible that the economic impact of the second wave of the Covid-19 pandemic may result in one or two modest cuts in the repo rate during the year to provide some additional economic relief once the Rand begins to strengthen, he notes.

BetterBond experienced its best December on record, with bond application volumes increasing by 53% year-on-year.

Another positive is that interest rates are unlikely to increase much, if at all, this year. In fact, Coetzee believes there may be opportunity for a further cut to jumpstart economic recovery once the vaccine has been rolled out and inflation stabilises.

Worst-case scenario, Goslett advises homeowners to leave room in their budgets for a possible increase of around 0.5 points during the course of 2021.

“While it is possible that interest rates may drop further during the course of the year in response to the ever-evolving circumstances surrounding the pandemic, it is always advisable for homeowners to make provision for the possibility of a minor increase, as this will directly affect the repayments on their home loan.”

He also encourages buyers to enter the property market while interest rates are at this “record-breaking low”.

While low interest rates undoubtedly make buying property more affordable, Tony Clarke, managing director of the Rawson Property Group also notes that they offer an “important opportunity” for consumers to consolidate finances, pay off debt and boost savings.

“Using this time wisely will go a long way towards minimising the effect any future interest rate increases will have on the security of existing property investments, and help new purchasers cover their fees and deposits, despite tight financial times.

“We don’t expect interest rates to start climbing until the second quarter of 2021 – and even then, they’ll likely climb slowly – but these optimal conditions will end at some point, so make the most of them while you can."

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