1% hike in interest rates likely next week
News > news - 02 Apr 2008
It is now virtually certain that next week's meeting of the SA Reserve Bank
will result in a further interest rate hike  and, says Tony Clarke, MD of
Rawson Properties, this time it is likely to be a full 100 base points (i.e.
1%) taking the interest rate to 15,5%. This is in the wake of the announced
CPIX inflation rate that reached 9,4%.

That, says Clarke, will be a blow to many home owners who are already
struggling to pay their bonds, it will deter investors, some of whom are now
pulling out and convince many first-time home buyers that they now have no
hope of getting onto the property owners ladder.

To put this in real terms, says Clarke, people with bonds in the region of
R1 million are now paying close to R13 000 per month. A 1% rise in the
interest rates will make it necessary for them to find an extra R750 per
month.

There is, Clarke, a growing suspicion that the consumer is bearing
the full burden of the government?s mistakes made a decade ago when they
totally failed to appreciate how fast energy demands would rise. The load
shedding and cut-backs on electricity supplies are a contributing cause of
the current high inflation rate, now over 9%. Many industry leaders feel
that the government should be using its reserves to bail out Eskom, rather
than again hitting the consumer on whom, in the long run, the entire economy
depends.

Other than the reserves, there are also allocated budgets that have not been
spend in various governmental departments. As this money is not being used
where it is, surely it should be used to help fund Eskom. We are in a
national crisis and everyone, including local and national authorities have
to contribute.

Asked if the much discussed rise in rentals, that is expected to follow the
interest rate rise, will not at least partially compensate for the higher
bond payments, Clarke said that most tenants are on fixed contracts and rent
escalations traditionally kick in only a year or two years after the
contract was signed.

In any case,he said, it is not the investors, it is the potential home
owners at the bottom of the market that the government should be concerned
about and as I have indicated these are rapidly abandoning their plans to
buy, even in the lowest priced property arena.
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