Although economists have been predicting a rise in interest rates of a quarter percentage point in November this year, the decision at today's Monetary Policy Committee (MPC) meeting to increase the repo rate was not entirely unexpected.
The increase comes at a time when consumers are already facing increasing living costs and is likely to place more financial pressure on potential home buyers who are eager to get into the market, says Adrian Goslett, CEO of REMAX of South Africa. According to Dr Andrew Golding, CE of the Pam Golding Property group, a further increase in the repo rate is a dampener for the property market. He says this is unfortunate news for homeowners, as well as the growing contingent of aspirant first-time buyers, and will ultimately be most felt by those who are already feeling the pressure of rising utilities costs and erosion in real household disposable income. This year the residential property market has performed strongly in all sectors, according to Dr Golding, who says the Pam Golding Property group continues to achieve increasing sales volumes (units) in regions and areas around the country, and notes increased consumer and investor confidence across all price bands - including the luxury homes market upwards of R10 million and beyond. "The top end of the market has led the way but we have also seen a resurgence of a young generation of purchasers - mainly singles and young couples or families, acquiring their first homes," he says. Also encouragingly, he says are signs of significant progress being made in regard to the backlog of distressed sellers as a result of the recession. He says the market for new residential developments continues to gain traction as developers and home purchasers alike demonstrate a strong appetite for newly built property, which offers all the benefits of secure and convenient, uncomplicated, lock-up-and-go living in well-positioned, central locations. "These and other investor-type products in gated estates afford not only the potential for increasing capital growth and sound rental returns due to strong demand, they offer considerable lifestyle appeal for those who prefer to rent." Stock shortages are also becoming increasingly evident, says Dr Golding. “For the calendar year to date the market has generally been characterised by ongoing positive sentiment, increasing activity levels, brisk sales and a marked shortage of stock in many areas around the country. During the past quarter these stock shortages have become increasingly prevalent and broad spread around the country, with well-priced homes in popular areas seeing several buyers competing for the same property and selling rapidly." He says at present activity levels in high demand areas are limited only by access to stock. Other factors contributing to the improving residential market outlook, he says include greater affordability, particularly at the lower levels, and marginally easier credit criteria imposed by the mortgage lending banks. “It is hoped that the interest rate remains relatively stable in the months ahead, particularly as the economy requires growth stimulus. However, we are optimistic that the residential property market will enjoy sustained activity levels in the near future,” he says. Seeff chairman, Samuel Seeff, has reacted with disappointment to the decision and considering that the housing market is finally on the mend, his view is this is just too soon and will certainly do little to instil investor confidence or encourage economic growth. Already, consumers have had to absorb the 50-basis point hike of January and as more than 85% of buyers require home loan finance, this is bad news for homeowners and buyers, he says. For consumers, their monthly bond repayment is the single largest expense, says Seeff. "A homeowner or prospective buyer with a bond of around R890 000 over a 20 year repayment period would have had to allow for an additional R284 per month following the January rate hike. Add to this, the knock-on effect on other credit commitments and day-to-day living costs. Now, they will need to find an additional R177 per month (almost R500 extra since the start of the year) just to meet their basic home loan commitments." It is difficult to see how consumers can reduce their overall debt levels, let alone save for a house deposit, he says.