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Friday Jul 20, 2012

Property industry welcome lower mortgage costs

The property industry has welcomed yesterday's interest rate cut, but one analyst has expressed concern that it could prematurely end the reduction in the high household debt to disposable income ratio.

FNB Home Loans household sector and property strategist John Loos admitted being surprised by the rate cut decision, adding that it might be a mildly positive stimulus for the residential property market in the short term.

However, Loos admitted he had some mild reservations about whether interest rates should be reduced right now.

Loos said the indebtedness of households and consumers was arguably too high at 74.7 percent of disposable income and believed interest rates should be positioned at a level that encouraged the ratio of household debt to disposable income continue to fall further.

"I'm a little concerned that further rate cutting may lead to a premature end to this declining trend in the debt to disposable income ratio.

"Should we go into another fairly normal magnitude of interest rate hiking cycle, I believe that the still high level of indebtedness would quickly manifest itself in a considerable degree of financial pain for the household/consumer sector, and for the residential property market," he said.

Seeff chairman Samuel Seeff said that, assuming banks passed the interest rate saving on to consumers, it was positive news for consumers and would certainly improve the affordability and reduce the cost of home ownership.

But he questioned whether it would have any real impact on property sales volumes.

Andrew Golding, the chief executive of the Pam Golding Property Group, said the rate reduction was welcome news and would provide a confidence boost to both the economy and the property market.

"Although interest rates are historically low, the days of many home buyers being able to achieve mortgages at below prime rate are seemingly over, which adds to the burden on consumers to have good cash flows from an affordability perspective," he said.

"We believe this further reduction in the interest rate will have a positive impact on the property market by providing a confidence boost in terms of sentiment, with cost savings, albeit modest, gradually filtering through into the market."

Adrian Goslett, the chief executive of Re/Max of Southern Africa, said the record low interest rate, coupled with the higher percentage of bond finance being approved, would continue to stimulate the improved property sales seen over the past few quarters.

Goslett said the South African property market traditionally reacted quite slowly to a rate cut or increase but the latest decrease would definitely spur consumer confidence in the months ahead and give prospective property buyers something to smile about.

Goslett said increased affordability levels were driving up demand in the property sector, which in turn would continue to have an impact on the price of property in the future.

Roy Cokayne
Business Report

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