Johann Appies, Chairman of the Black Conveyancers’ Association, has called on the SA Reserve Bank to implement a special lower repo rate for housing loans.
Appies says, in a media release, that the constitution of South Africa stipulates that the SARB is responsible for the protection of South Africa’s currency in the interests of economic growth and development. The SARB, he said, interprets this mandate as being “the achievement and maintenance of price stability”.
“The bank,” said Appies, “accepts that it has to provide a low and stable inflation environment conducive to long term growth and this, as we all know, has been achieved by the SARB largely by fluctuating the repurchase or repo rate.”
This system of inflation targeting through the repo rate, said Appies, has now been questioned by a number of political bodies – including some people in the ANC, the SACP and Cosatu - as well as by many financial institutions, business organisations and economists. There is now, Appies believes, a very real fear that any further rate rises will seriously hurt the already struggling economy without having much effect on inflation.
“Business failures could rise by 25% this year,” said Appies, “and this would have a huge impact on the livelihood of thousands, if not millions, of people.
“Our view in the BCA,” he said, “is that the raising of interest rates in a sophisticated economy such as our own has been shown to be too blunt an instrument to achieve the specified aims. Sadly, the people most vulnerable not only to inflation but also to higher interest rates are almost invariably the poor and the previously disadvantaged.
“South Africa’s unique history and complex society, we believe, calls for a more innovative approach to inflation targeting, one that will soften the blow for all categories of asset buyers, but particularly home buyers.”
Appies reminds us that a home purchase is, for the average man, far and away his biggest exposure to credit.
“Even under the more stringent National Credit Act rulings it amounts to around 30% of the wage earner’s available income. Any increase in the interest rate can - and does - have a significant detrimental effect on their financies.
“Tragically, it also limits drastically the number of first time home buyers able to get onto the home owning ladder and to acquire this very valuable fixed asset, the basis of all domestic wealth.
“In effect, therefore, the SARB ‘s home interest rate policy is a contradiction of its stated mission of achieving price stability on long term home loan interest rate transactions.”
BCA members, said Appies, tend to agree that, if the government is serious in its intention to make South Africa a stable home owning country, it is now essential to introduce a special repo rate for home loans. This, he says, would enable the average man to calculate in advance and with complete certainty his monthly outlays and would be a huge booster to the economic situation and to the welfare of all people in the country.
A change along these lines, said Appies, would inject stability and confidence into South Africa’s economy and remove the nagging uncertainty and fear that have plagued so many homebuyers recently.
“South Africa’s unique history and complex society call for a more innovative and sophisticated approach in order to soften the blow to consumers, especially in respect of property and assets that do not tend to impact negatively on inflation but provide a relatively good investment.
“Whether the SARB is correct in its approach and policy will not be debated here. They must however allow room for error in, or exceptions to, their policy.
“Conditions and criteria,” added Appies, “could be set to prevent exploitation of the proposed special exemption by customers and financial institutions alike. The special repo rate can be reserved for designated categories of people to safeguard them from the ravages of the current S A Reserve Bank policy. As we have indicated, this would bring much needed stability to the property market and its related financial services sector.”