- The SA Reserve Bank on Thursday announced a 25-basis points rate cut.
- The cumulative effect of the interest rate cuts has reduced monthly payments by almost 20%.
- In June, ooba's ratio of home loan applications from first-time homebuyers increased by 12%.
The latest interest rate cut by the SA Reserve Bank will not only provide some additional support for homeowners in terms of staying ahead of the debt curve, but offers the best property buying opportunities in almost 20 years, according to Herschel Jawitz, CEO of Jawitz Properties.
The SA Reserve Bank on Thursday announced a 25-basis points rate cut, lowering the repo rate to 3.5% and the prime lending rate to 7%. The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks. So far this year, the SARB has already lowered interest rates by 300 basis points.
"The current market is one to seriously consider if you are a buyer who has a secure monthly income and has a long-term view of where you want to live or invest. The cumulative effect of the interest rate cuts has reduced monthly payments by almost 20% from where it was in March this year," says Jawitz.
According to Marcél du Toit, CEO of residential property platform Leadhome, the rate cut would boost the property market even further, following a 45% increase in buyer activity since lockdown restrictions relaxed.
Rhys Dyer, CEO of ooba, adds that, after extremely low business levels in April and May, it has received a flood of home loan applications in June, up 51% compared to June 2019. This high level of activity has continued into July, with volumes in July up over 60% on the same period last year.
In June, ooba's ratio of home loan applications from first-time homebuyers increased by 12% as buyers who previously could not afford a home are entering the market for the first time due to lower interest rates. The average age of ooba's applicants is now 36 years old.
The majority of the activity in the market appears to be focused in the price bank between R750 000 and R2 million.
Shorter loan period
Carl Coetzee, CEO of BetterBond, explains that the difference from the prime lending rate of 9.75% at the beginning of the year to 7% on a R1 million home loan could mean a saving of R416 000 over a 20-year bond term.
Furthermore, on a R1 million bond, if one continues paying the same monthly bond repayment one was paying when the repo rate was higher, at 9.75%, with an interest rate now at 7%, one saves a total of R304 000, making it possible to shorten the loan period by 6.25 years.
"From a real estate point of view, though, four interest rate cuts in a row will have a positive impact on confidence in fixed asset investment because there are few safe haven investments in such volatile markets and with no global playbook for pandemics, property is even more attractive," says Joff van Reenen, director of High Street Auctions. He adds there is increasing buyer appetite for rural residential properties on auction.
Bruce Swain, CEO of Leapfrog Property Group, agrees that property has proved time and again to be a resilient investment in times of uncertainty.
At the current interest rate, it is possible that one's monthly repayments on a home loan could be less than one would expect to pay in rent for the same property, according to Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa. At the current interest rate of 7%, repayments on a R1 million home loan taken over 20 years would amount to R7 753 per month.
More aggressive stance
Samuel Seeff, chairman of the Seeff Property Group, says he remains of the view that the SARB should be taking a more aggressive stance with deeper cuts to boost the economy and property market during this unprecedented economic recession.
"People are not spending and the economy is simply not moving. More needs to be done to give momentum to the economy and property market," he says. "While we are generally in a buyer's market, they must be realistic with their offers. Although there is good demand in the market, there are very few desperate sellers."
Dr Andrew Golding, chief executive of the Pam Golding Property group, says the reduction in the repo rate for the year to date has had a positive impact on demand – particularly in the lower price band below R2 million, where a high uptake is seen, not only among first-time buyers, but also investors. They have even seen some international buyers investing in property in South Africa, taking advantage of the weaker currency.