Repo rate reduction could have gone further

Posted On Tuesday, 31 March 2009 02:00 Published by eProp Commercial Property News
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Commenting on the decision by the Monetary Policy Committee to reduce the repo rate by one percent, Dr Andrew Golding said while this was most welcome news, a two percent decrease would have sent a meaningful message to the economy.

Andrew Golding

"At the previous meeting of the Monetary Policy Committee, the Governor of the Reserve Bank, Tito Mboweni indicated that his recommendation then was for a 200 percent reduction and it is widely acknowledged that our economy needs a significant kick start. The interest rate increases implemented since 2006 – while experiencing lag before taking effect – have had the cumulative effect of placing a major dampener on economic growth and market sentiment.

"From a residential property perspective the market in general has seen a material reduction in sales transactions and while there are exceptions to the general trend in certain market segments the number of sales concluded is approximately 30-40 percent lower year on year. Again, on average – although there are exceptions in certain market segments where buyer demand is strong and houses unique – prices have probably decreased by approximately 10 percent year on year.  It is also true that a distressed seller may have to accept an offer greater than the 10 percent price reduction and in some instances may even be in the position where the outstanding bond exceeds the purchase price, negative equity.

"Clearly consumers and that includes home owners, are under considerable pressure due to higher interest rates, ever-increasing food prices and fuel prices which are once again on the rise, making the call for a notable decrease in the interest rate even more urgent. The very fact that the Committee will be meeting monthly gives credence to this.

"In addition, it is becoming an increasing imperative that financial institutions take a more realistic view to lending in respect of current credit lending criteria. The net effect of this is particularly harsh for first time buyers, where the challenges of funding – which include finding a deposit of 10-30 percent of the purchase price are often such that it severely hampers them from acquiring their first home and gaining a foothold in the property market. 

"We sincerely hope that the repo rate – and hence the interest rate – will see further reductions in the coming months which will serve to provide a meaningful boost to South Africa's economy," said Dr Golding.

Last modified on Wednesday, 12 March 2014 09:17

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