Real estate supports lowered repo rate as important step

On Thursday the Reserve Bank decided to lower the repo rate. The rate has been lowered by half a percentage point leaving it at 5%. John Loos, Household Sector and Property Strategist at FNB Home Loans, admitted to being surprised as the possibility of such a cut was only expected in September.

Loos is also doubtful if a cut is the best course of action at this time: “In the world of the household/consumer, one “excess” that has developed is arguably too high a level of indebtedness, and I believe that interest rates should be positioned at a level that encourages the household debt-to-disposable income ratio to continue to decline further”.

Those in the real estate market, who have long been calling for an interest rate cut, welcomed it today: “Whilst the cut might not be in the best interest of the economy at large it does offer a small respite to the residential property market and will benefit both buyers and sellers in the long run”, says Jan le Roux, CEO of Leapfrog Property Group.

Le Roux does however concur with Loos that the current household disposable income-to-debt ratio remains too high and believes that households need to embrace this opportunity to rectify their balance sheets.
Existing home owners with mortgages will hopefully put this respite to good use reducing their indebtedness, and in some cases will allow those under pressure to retain their homes.

Purchasers will also benefit in that this reduction makes available properties more affordable to them.  Le Roux believes that this will however not make a huge difference, nor will it “boost” the property market. “There are many willing and able buyers but, the banks’ current credit policies prohibit them from obtaining finance. Until these stringent policies are relaxed the property market will suffer.”

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