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Steeple SA
 
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Property market will be affected by no change in interest rate

09 April 2014, 13:06

It is clear that South Africa is in a rising interest rate cycle and although there is no repo rate increase now, further increases are on the horizon.

South Africa is now almost in a stagflation environment, with upward pressure on inflation but faltering Gross Domestic Product (GDP) growth. It is probably for the latter reason that the repo rate has remained unchanged, because the plummeting Rand is certainly putting pressure on inflation and the conventional response would be to raise rates. By holding off on the rate increase, Reserve Bank Governor Gill Marcus is hoping that the economy can still grow.

The immediate outlook for the property market may be more positive than if the repo rate had been increased, but not materially so. The property market is interest rate sensitive so if rates remain the same then one might expect no real change in the confidence of buyers and sellers to transact.

However, banks will look ahead to the looming further increases and apply even stricter lending criteria. This would mean a drop in the home loan approval rate, and will overly prejudice younger or first time buyers who generally are more dependent on bond finance for a substantial part of the purchase price. It is increasingly likely that we could see properties having to be sold more than once, as bond applications from buyers are declined by the banks.

Demand in the metro areas should remain strong but the stricter lending criteria will result in reduced sales volumes.

The property market has recovered from the dead zone of a few years ago but we can't expect a break-out performance any time soon.

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