Johannesburg, South Africa

Tito Mboweni gave homeowners further relief on Thursday when he cut the interest rate by another 100 basis points to 8,5%.

But Jacques du Toit, property analyst at Absa, says although interest rates were cut by a cumulative 350 basis since December last year, causing mortgage repayments to be 18,7% lower as a result, they are still 10,3% higher than in June 2006 when the mortgage rate was at 10,5%.

"The residential property market continued to experience tough conditions in the early months of 2009, with nominal price growth in negative territory and prices declining in real terms since the start of the third quarter of 2007. Despite declining interest rates, the housing market is expected to remain under pressure for most of 2009 on the back of a poorly performing economy, affecting employment and consumer confidence and sentiment," Du Toit said.

"In view of the abovementioned developments and expectations, the residential property market is forecast to only bottom in late 2009 and to gradually recover during the course of 2010, largely driven by lower interest rates and expected better economic conditions next year. House prices are forecast to drop in both nominal and real terms this year."

South African banking groups Standard Bank (SBK), First National Bank (FNB) and ABSA have all announced a 100 basis points cut in their lending rates.

All the banks will reduce lending rates - prime and home loans - from 13% to 12% with effect from Monday May 4.

"We continue to urge borrowers to use declining rates as an opportunity to improve their financial position. Where possible customers with mortgages should maintain their payments at pre-cut levels, as this will significantly lower the overall cost of the mortgage," said Michael Jordaan, CEO of FNB.

Dr Andrew Golding, CE of Pam Golding Properties (PGP), echoes Du Toit's views and adds that "at a value level house prices are still on a downward trend, and it is anticipated that these will drop by a total of 10% during this year".

"However, this trend is slowing and indications are that the turn in the market is nearer rather than further away. Unrealistic sellers are now few and far between and we have a scenario where a much more realistic market exists – sellers are motivated and more accepting of the current situation.

"Each drop in the interest rate is a further, significant step in the right direction towards aiding the recovery of the housing market and hopefully this downward trend will continue for the remainder of this year (2009). With the stabilisation of sales volumes, coupled with further interest rate reductions, it is hoped that we will begin to see at least an incremental improvement in transactional activity as affordability improves and enables more consumers to meet current bank lending policies."

Brian Falconer, MD of Colliers International Residential, says "for every R1m bonded, a homeowner will save R704,90 a month relative to their previous repayments, given the new prime rate of 12%".

"In total, since the Reserve Bank changed its approach and began cutting interest rates, we have seen a 350 basis points cut, which for R1m held in a mortgage has returned R2 527,95 into the back pocket of a bondholder." - Eugene Brink and I-Net Bridge

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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