Cape Town, South Africa

The latest cut in interest rates will have a positive impact on the slowing South African economy, property group Colliers Residential said today. This followed the earlier announcement by the governor of the SA Reserve Bank Tito Mboweni that the Monetary Policy Committee (MPC) had decided to cut the repo rate by 100 basis points, the third such announcement in the last six months.

"For every R1 million that a bondholder owes, they will get back R720 a month," said Brian Falconer of Colliers Residential, assuming that there was a drop in the prime rate from 14% to 13%. In total, since the Reserve Bank began its cycle of interest rate cuts, bondholders had seen a return of R2197 into their back pocket, and assuming a further rate cut in April, bondholders would have enjoyed a cut of R2 902 per R1 million of bond, Falconer said.

"This will have a three-way stimulatory effect: it will reduce the pressure on many thousands of bondholders who have found themselves at the very edge of being able to afford their bonds, thereby slowing the round of property repossessions; it will release billions of rand back into the general economy, stimulating spending; and it will make the property market easier to access for new entrants."

Simon Stockley, CEO of Integer Home Loans, said the rate cut was welcome news to hard-pressed consumers. "The MPC finally appears to be taking notice of the reality that there is real slowdown and stress in the economy and they are responding appropriately," Stockley said.

"The increased frequency of MPC meetings will hopefully allow for a more responsive approach to the interest rate environment," he added. Property developers in the commercial sector, Ivora Properties, said while it welcomed the decision to cut the repo rate, there would have to be a substantial drop in rates before they had any significant impact on the sector.

"The banks' lending criteria remain the most critical factor which puts clients in a disadvantaged position due to the required 10-30% deposits, especially for vacant land developments. Nevertheless, it will bring positive sentiment back and the astute buyer should start looking now at implementing transactions to benefit from in 12-18 months when the market is expected to normalise," Ivora said.

Slowdown has positive effect on property market

REMAX estate agents said while there was little doubt that residential sales had suffered from high interest rates and the banks' more stringent lending patterns, it believed the slowdown had had some positive effects on the market, particularly in introducing more realism in selling prices.

"However, there was no doubt that trading levels had been seriously affected and now needed today's MPC stimulation," said Adrian Goslett, assistant regional director of Remax Southern Africa. Property management company Koleledi Holdings, however, said Tuesday's rate cut was not really going to alleviate the financial burden of the man on the street. "The property investor market has taken a substantial knock due to the current economic climate.

"It is going to take a lot more than a 1 percent decrease to revitalise construction and residential development activities," said Koleledi's group CEO Pieter de Wet.

"As it is, landlords who are already battling to pay their bonds, tend to forego payment of their levies as well. The spin-off from this means that sectional title schemes can no longer pay for maintenance of the property and more importantly, security services." De Wet said this left these estates unprotected and vulnerable to crime and vandalism and this had a significant impact on property investors. - Sapa

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 10,092 employees span the world in 267 offices in 57 countries. On a worldwide basis, Colliers manages 672,945,918 square feet, and has revenue of $US 1,620,958,349.

Contact Information

Brian Falconer

brianf@colliersresidential.co.za

Tel: +27 11 469 0423

Sanett Uys

sanettu@colliers.co.za

Tel: +27 21 591 5067

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