Saved
0
Removed
0
Shared
0
IOLProperty - South African Property For Sale
Wednesday Sep 19, 2012

Current property market might be the new 'normal' for our 'low growth economy'

It is doubtful whether a further reduction in interest rates this week by the Reserve Bank's monetary policy committee would be the right thing to do for the longer-term financial health of the household sector, according to FNB.

John Loos, a household sector strategist at FNB, said a further interest rate cut could be justified from a narrow inflation-targeting viewpoint, but the Reserve Bank had probably "given over enough" in terms of lowering the cost of household debt and stimulating the housing market.

Loos said the Reserve Bank had already greatly improved housing affordability through the massive interest rate cuts since late 2008 despite these reductions only resulting in a moderate response by the housing market.

Before the housing market moved to sustainably stronger levels, the level of household indebtedness related to income had to decline, savings rates had to improve significantly and big adjustments had to be made to accommodate the sharp increase in housing-related rates and utilities tariffs, he said.

"These financial health improvements probably won't be achieved by further interest rate reductions, should they occur," he said.

He also questioned whether the performance of the housing market was as mediocre as suggested by some people.

He said many were still benchmarking the current performance of the housing market with the property boom in the last decade, which was the biggest boom in the country's recorded history and probably would not be repeated soon.

"Perhaps the current market is more 'normal' than we think for the low growth economy that South Africa is."

Loos argued that the Reserve Bank had "done its bit" to stimulate the residential property market despite consumer inflation and not house price inflation being its official focus. He admitted there were some constraining factors hampering further improvements in housing affordability, but stressed some lay outside the bank's sphere of influence.

He added that the affordability of housing was also impacted by "home-running costs", such as municipal rates and utilities tariffs.

He said the ratio between average house prices and average remuneration had dropped by 24.4 percent in the past four years, but the ratio of rates and tariffs to remuneration had risen by 6.54 percent in the same period.

Business Report

 
comments powered by Disqus

Calendar

Search

Property Searches:

RSS Feeds

Browse Property For Sale

© Independent Online Property Joint Venture (Pty) Ltd. All rights reserved.
Reliance on any information this site contains is at your own risk. Please read our Terms and Conditions of Use and Privacy Policy.