Further 1% rate cut means it could be 'cheaper to buy than rent'
Category Property Market
The decision by the Reserve Bank to cut the repo rate by a further 100 basis points to 4.25%, bringing the bond rate to 7.75%, is seen as absolutely necessary for the economy and property market - providing a significant 20% saving and boost for demand.
Tuesday's announcement made via twitter, is the second major cut in less than a month, after the Reserve Bank cut the rate by one percentage point on 14 March. The surprise rate cut comes after the Monetary Policy Committee moved its May 2020 meeting earlier to today.
This rate cut takes the interest rate to a new historic low.
"Together with the previous cut, this is vital for when the country comes out of the Covid-19 Lockdown and the recovery starts. The two rate cuts provide a saving of about 20% for property buyers and is a significant boost for demand," says Samuel Seeff, chairman of the Seeff Property Group.
He expects that the property market will emerge from the Lockdown with a level of pent-up demand, but still mainly in the primary residential market to around R1.5m (up to R3m in some areas).
Above that price level, especially where buyers are not so reliant on mortgage finance, Seeff believes that activity will remain muted.
'Cheaper now to buy than to rent'
Gerhard Kotzé, MD of the RealNet estate agency group says in some instances, the rate cuts mean it may even be "cheaper now to buy than to rent, especially if they focus on sectional title (ST) apartments and townhouses, and we are now seeing a definite increase in enquiries about such units".
Other good reasons for first-time buyers to choose ST homes, he says, include the fact that ST developments usually contain the highest number of units per hectare of land. "This brings down the land cost as a proportion of the purchase price per unit, so buyers get more actual living space for their money.
"Those who are buying into a new ST development don't have to worry about paying transfer duty. They will pay VAT instead, but this will usually be built into the purchase price, so they will only need cash to cover their bond registration fee and the legal costs of transfer - and some developers will even cover these amounts."
'Growing expectation 20/21 budget to be revised drastically'
Further to the rate cuts a large-scale infrastructural investment programme initiated to revive the economy is need as South Africa faces the economic impact of the Covid-19 pandemic and lockdown, says Rowan Alexander, Directors at Alexander Swart Property Group.
This should be designed to keep many businesses afloat and to prevent the already high official unemployment rate, rising almost overnight by an anticipated 50%.
"The figures and trends previously used as guidelines no longer apply: a total rethink is now recognised as essential," says Alexander "and the government seems to recognise the urgency with which this is required.
"South Africa's GDP, we are told, will decline by up to 7% if drastic measures are not taken now. The government will have to increase its very high borrowings to save us from a countrywide meltdown. This will not be easy as SARS is already over R60 billion short of its anticipated tax income for this year and our borrowings are already excessive - but there is clearly no alternative."
The sum to be injected into job creation initiatives over the next two to three years, said Alexander, is reported to be in excess of R3 trillion.
"It has been shown worldwide, that one of the great advantages of such infrastructural boost programmes is that property and the construction sector are always among the main beneficiaries of such input. This widely expected boost from the State will very definitely assist property, particularly residential property, to ride out the many negative factors we will face in the next year or more."
Author: Property24
