Collective Sigh of Relief for Property Owners in SA

Sigh of Relief for Property Owners

An article in Business Day published last week discusses the monetary policy committee’s decision to raise interest rates by just 50 basis points. The move was seen as an ‘ironic twist’ and relatively “good news” for the residential property market in particular, which has had a torrid time since January.

Homeowners already under pressure in the face of soaring food and fuel prices, feared at least a hike of 100 basis points after Reserve Bank governor Tito Mboweni recently hinted at an expected rise of 200 basis points. The residential property market is yet to feel the effects of the April interest rate hike, as these still have to filter through.

Chief executive of Pam Golding Properties, Andrew Golding said that Mboweni’s warning of a potential 200 basis points increase had “conditioned the market” to anticipate at least 100 basis points and that the 50 basis point hike had come as “relatively good news” as a result.

However, Golding emphasized the fact that this is the tenth interest rate hike since the cycle began in June 2006 and that it takes “some time for the actual effects of any interest rate increases to be felt”. He added that, “the market is still feeling the effects of the previous interest rate rises, so this is by no means good news”.

Rael Levitt, CEO of auction house The Alliance Group, believes that ironically the lower than expected interest rate hike has come as good news for the residential property market, which has been “savaged by poor sentiment”. He predicted that the market would continue seeing a “deceleration in prices” and “distressed” mortgage bondholders.

Eskel Jawitz, chairman of Jawitz Properties said that the fact that the hike was only 50 basis points was a “welcome relief” to the residential property market. But he warned that Mboweni’s message was, “if we don’t get our house in order, there is a possibility of further increases”.

“While we are happy it has only gone up 50 points, we have to recognize there has been 10 rises over the past two years and the average homeowner is certainly finding it difficult not only to cope with an increase in interest rates, but also the increase in fuel, the looming electricity price hikes and new municipal rates,” Jawitz said.

He added that the market had to “accept” that the net disposable income of most people these days was far less than two years ago. “The positive thing, notwithstanding what is going on, is that buyers are still buying, sellers are selling and the properties are changing hands,” insists Jawitz.

The information in this article is courtesy of Nick Wilson (“South Africa: Property Sector Relief at Rate Hike”, Business Day, 13 June 2008).

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