Is a Stable Interest Rate Enough?

The Reserve Bank’s decision to leave the repo rate at 5.5% falls in line with predictions by economists earlier this year. This ongoing stability is good news for the property market which shows indications of improving.

According to the March FNB House Price Index the residential property market has seen some house price acceleration from a revised February growth rate of 7.1% to 8% year-on-year.

The good news continues with the recent FNB Estate Agent Survey in which agents indicate that they too are seeing a shift in the market. The survey attributes the increased optimism to improved demand, as well as some improvement in the balance between demand and supply, or otherwise put an improvement in “pricing realism”.

Whilst banks have indicated their desire to increase their market share in the mortgages section, sellers are more realistic with their asking prices and the interest rate is set to remain stable consumers are facing rising electricity costs, hikes in fuel prices and increases in rates.

Should the proposed increases listed in the budget draft presented by Cape Town Mayor, Patricia de Lille, be implemented locals could see a 11.03% tariff increase for electricity, 15 % for water and 7% for waste removal. Home owners in Durban could face an 11% increase in power and a water tariff increase of 12.5%. In Gauteng consumers are coming to terms with a petrol price increase of 71 cents per litre - 95 grade petrol now stands at R11.94.

Whilst these increases have a definite impact on consumer pockets it’s good to remember that there is a silver lining: the interest rate is currently at a 30 year low and, it’s stable, unlike the 1998 – 1999 period where it was changing significantly every three months. “The market might not be strong at the moment but, home buyers can be grateful that the interest rate remains unchanged. At least in this position everyone knows what’s coming and can work with what they’ve got”, says Jan le Roux, CEO of Leapfrog Property Group.

Le Roux goes on to point out that owning property over the medium and long term always has been, and currently still is, one of the few, if not only, means through which wealth can be accumulated by the general public. All indications are that the market is stable at present and as such buyers are well advised to put pen to paper and not to hold thumbs for a drop in prices. Based on this perspective buyers need to take a long term view, realising that their investment in property will bear fruit regardless of the current economic restrictions.

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