The news that the Consumer Price Index (CPI) has dropped to a 14 month low of 4,9%, will reinforce pleas from the South African residential marketing and development sector for a further 0,5% drop in the interest rates, says Nancy Todd, the Rawson Property Group's Western Cape business development manager.
"To many people the new CPI rate has come as a welcome surprise. There was a perception in the market that, with state and provincial wage increases running ahead of the inflation rate, South Africans had become once again reckless spenders. This, however, has not been the case as a new financial awareness and caution is now evident among potential home buyers and, secondly, that the desire for home ownership, especially in the emerging middle class, is now stronger than ever before."
Oil and grain costs are a problem
Some commentators have argued that with the banks rejecting some 50% of all bond applications, a further drop in interest rates will make little or no difference to house sales. "That is not the perception that we have in the Rawson Property Group," said Todd. "One has to appreciate that on a R800 000 bond taken over 20 years, a 0,5% drop would give a reduction of R250 per month in payments. A saving of that size, while insignificant to many people, would be of great importance to a couple earning R16 000 to R18 000 per month."
Todd said that the South African Reserve Bank will now be taking a close look at rising global oil and grain costs and these could understandably lead to hesitancy in dropping the repo rate. However, even a three or four month drop would make a significant difference to the housing market.
"No sector responds more quickly and more directly to interest rate fluctuations than property. As the government's declared intention is still to make South Africa a home owning nation, low CPI rates give them an opportunity to implement that policy - even if a change in the rate later becomes essential. The current high percentage of the population who are renting rather than buying should be seen as a warning sign and should not be regarded as acceptable," she concluded.
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