Mixed response to repo rate decision

Private Property South Africa

The Reserve Bank’s decision to leave the repo rate unchanged at 5.5% has elicited a mixed response from the property industry.

Bryan Biehler, MD of the Huizemark property group says: “Although not entirely unexpected, we feel that an opportunity for a mild property market boost has been missed. To be blunt, the property market is flat right now and a slight cut in the repo rate would have done much to improve sentiment.”

According to Biehler, there has been a distinct decline in property market activity over the past 24 months; the majority of sellers have dropped their prices by as much as 20% and the marketing period of homes has increased from four months to between six and nine months. High debt ratios, increasing living costs and the possibility of a double-dip recession in America and Europe are also taking their toll he says.

RE/MAX Southern Africa on the other hand seemed quite comfortable with the decision. The group stated that South Africans would welcome the news that the interest rate had not been increased. However, the group went on to say that although demand for property has increased and mortgage finance figures are looking more positive, house prices continue to reflect the strain of a recovering buyer’s market and access to finance will continue to prove tricky.

Factors such as consumer inflation which rose slower than expected, slightly improved retail sales growth and the recent sharp downturn in the rand all played a role in the Monetary Policy Committee’s (MPC) decision to leave the repo rate unchanged.

Governor Gill Marcus said the MPC did discuss a cut in the lending rate but that the final decision to keep it on hold was unanimous. The Reserve Bank’s official repo rate has been at a 30 year low of 5.5% since November 2010, after retreating from a peak of 12% in December 2008. Analysts remark that monetary policy is already accommodative and rates are likely to remain stable at least until 2012. Although annual inflation was steady at 5.3% in August, the bank said it still expected inflation to trend higher, with administered prices and food costs the main upside risk.

The MPC also mentioned that it was concerned about the rand, which fell nearly 20% against the dollar over the past few weeks. Growth-wise, the Reserve Bank also cut its growth forecast from 3.7% for 2011 to 3.2%. The bank envisages that the economy will grow by 3.6% and 4.4% in 2012 and 2013 respectively.

Marcus explained that emerging markets such as South Africa would still experience fast growth but remained vulnerable to a significant slowdown in developed markets. "Downside risks are seen to come from the heightened risks to global growth and its consequences for the domestic economy," Marcus noted.

Negativity aside, the fact that the repo rate has remained stable is good news for buyers applying for bonds says Biehler. “Buyers can take their pick of properties right now and they should take advantage of the situation as it won’t stay this way forever.”

Biehler adds that South Africa can be grateful for the sound financial policies which have been implemented by government over the past few years as these have protected the country from the worst of the global economic fallout and will no doubt continue to shield the country going forward to a large extent.

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