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Interest rate decision a welcome breather

21 May 2015

While no surprise in view of the better than expected April inflation rate of 4.5% (against a predicted 4.7%), the decision by the Reserve Bank’s Monetary Policy Committee is nonetheless great news, especially for first-time home buyers.

Homeowners and those planning on buying property can breathe a sigh of relief at today’s decision to leave the interest rates the same.

That is the word from Samuel Seeff, chairman of the Seeff property group, who says keeping the interest rate at what remains a five-decade historic low of 5.75% (base home loan rate of 9.25%) has been an important driver of the growth in the housing market.

There can be little doubt that first-time home buying has improved over the last two years with this demographic now accounting for about a quarter of all home buying nationally, he says. The oil-price bonus and resultant lower inflation outlook early this year provided an added boost for this sector as has the raising of the transfer duty exemption level by government to R750 000.

The improved mortgage lending landscape too has greatly aided first-time buying, says Seeff. According to Ooba’s latest barometer, it now sees a home loan application success rate of over 75%, about 50% of which are first-time applicants.

Seeff says that while the banks have started signalling warnings of a slowdown of the buoyant buying activity that has characterised the market over the last two years, word on the ground remains one of good demand and stock shortages.

We are still seeing a well-balanced market with plenty of activity. Three to five years ago, sellers still had to settle for on average 20-30% below their asking prices and properties were taking on average five months to sell. Now, we are seeing properties selling almost as fast as they are hitting the market and in many areas up to 40% at close to or full asking price, says Seeff.

It is still a positive phase with good selling conditions across most areas, he adds. House price growth remains positive at about 2%-plus above inflation on average. The high demand areas, especially the more affordable sector below R800 000 is seeing excellent price growth and, in some areas property values are now 30-40% higher than five years ago.

While it is safe to say that this will be a year of mediocre economic performance, Seeff believes that the property market will retain is lustre. Buyers will continue taking advantage of the favourable conditions and those looking to sell should still do so.

There is no doubt though that the challenges for consumers are mounting and, as noted in the April Consumer Price Index, inflation is again accelerating. Seeff says that this means that the risk of an interest rate hike towards the latter part of this year therefore remains. Buyers should be aware of this and ensure they plan adequately.

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