Bond rate still high despite cut

Posted On Monday, 23 June 2003 02:00 Published by
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Property industry spokesmen have welcomed the Reserve Bank's lowering of the prime lending rate by 1.5% last week.

June 23, 2003

Property industry spokesmen have welcomed the Reserve Bank's lowering of the prime lending rate by 1.5% last week.

Seeff Western Cape licensee chairman Ian Slot said the cut "was also a very necessary logical step, given the recent revision of incorrect inflation figures".

"While the agency applauds the move as a clear expression of confidence in our economy, it must be remembered that SA bond rates remain high in world terms," said Slot.

"Property prices are linked to affordability, and when interest rates come down substantially, there is a substantial increase in property values and prices. Then everyone tends to jump in and the chances of getting good value tend to be lower.

"Still, we would like to make a strong call on Finance Minister Trevor Manuel to make the interest element of the mortgage bond on one's primary residence tax-deductible. This would strongly enforce the government's commitment to encouraging and enabling home ownership."

The chief executive of the Pam Golding Properties group, Dr Andrew Golding, says the residential property market continues to reflect buoyancy and strong demand, and that the rate reduction will be a welcome boost for homeowners - particularly those in the lower and middle market.

"It should also serve as a general catalyst for economic growth, while hopefully enabling more aspiring homeowners to gain entry into the property market and rightfully secure their share of the rewards available over the medium to long term through property ownership  

"Recent years have demonstrated and current projections continue to emphasise the ever-increasing confidence in and sound value appreciation of residential property in South Africa," he said.

Bill Rawson, chairman of the Rawson Property Group, advised bond holders to continue to pay off their bonds at the old interest rates.

In a "typically South African way", says Rawson, the reaction to the recent drop in interest rates by the majority of homeowners has been to calculate how much more spending power they have been given.

"This is a great pity. Surely after the rough ride homeowners have experienced with interest rates over the last five years we should by now have learned one thing: it is in our interest to pay off our bonds as fast as we can."

Bruce Swain, regional director of RE/MAX of Southern Africa, said the property market still had room for further solid growth on the basis of relative affordability, and that the 1.5% cut was therefore unlikely to lead to overheating of property prices.

Also, suggestions that lower bond rates would make property at the lower end of the market less affordable, could be discounted, Swain said.

Prices of homes under R100 000 had actually decreased in "real" terms, ie after inflation, by 11.8% in the first quarter of 2003, according to Absa. It was the biggest drop since 1998. - Cape Argus

Publisher: Business Report
Source: Business Report

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