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The interest rate increase last week has made it even harder for people to afford their own property in the Helderberg with real costs rocketing, by one calculation, up by 50% since June 2006. The prime lending rate is now 15%.

Using an example, Steve Caradoc-Davies of Homenet Platinum in Somerset West says if a buyer purchased a property for R2-million in June 2006 - when the first of nine straight rate increases was made - and took 100% finance, the instalment on prime would have been approximately R18 880 per month. Today, that same bond would cost him R25 620. That represents an increase of 35,7% in the cost of finance.

"In addition to this, although the escalation of property values has slowed, a conservative estimate would be a 15% increase in Somerset West over the past 22 months.

The two factors combined mean that, for the average purchaser who finances most or all of his purchase, the real cost to him has increased by over 50%," says Caradoc-Davies.

Although not unexpected, this latest increase has implications that genuine property sellers will have to take into consideration, according to him.

"The fact is that a large proportion of purchasers borrow funds to finance their property purchase, and the recent interest rate increases mean that the real cost of property for them has increased significantly."

This would continue to dampen the pace of property sales, but more important to Jeanne van Jaarsveldt, marketing and finance director of RE/MAX of Southern Africa, was the effect the hike would have on residential rentals as he was in little doubt the rise would be flashed onto tenants.

Rental crisis
He believes the lower end of rental markets was approaching a crisis level. "Stock is there, but because of the surge in numbers of failed credit checks landlords are insisting on double deposits to safeguard their investments and higher rentals to offset higher mortgage repayments."

The ninth interest rate increase in a period of less than two years had also flattened many landlord's ability to negotiate on rentals, which was one of the traditional safeguards offered them in a rising interest rate scenario. "Worse still, the current grimness of the rental market will intensify further with the full impact of the new municipal rates structures, which will also inevitably be passed onto tenants.

"The key in sustaining a sound flow in property transactions is for sellers to price their properties relevant to today's market conditions."

Caradoc-Davies says sales volumes in Somerset West have declined by "at least" 30%.

"The economic reality is that buyers will not purchase beyond their means, and the National Credit Act ensures this.

"Genuine sellers should have a new comparative market analysis done on their properties that takes into consideration the effect of the interest rate increases.

Armed with this information it is possible to set your asking price at a realistic market value," he says.

"If you price at market value, you will attract buyer interest.

"Buyers are buying property, but only at prices that make sense. The challenge is to determine market value and then to meet the market by pricing correctly. Unless this is done a property will sit on the market for months, or even years, without selling."

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© Tel. (021) 853-0211 Fax. (021) 853-0234 2003 Somerset Press (Pty) Ltd on all information and photographs.