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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2016-11-04
Prime lending rate is at 10,5%

The SA Reserve Bank's website is a great resource to get a quick snapshot of the key economic indicators that impact on our daily lives. At the top of the list is the CPI measure of inflation, currently 6.1% as measured in September this year. The PPI (producer price inflation) is marginally higher at 6,6% but has come down from the 7,2% and the 7,4% in the previous two months.

The "repo" rate (i.e. the rate at which all the commercial banks borrow from from the Reserve Bank) is at 7% and the prime lending rate is currently at 10,5%. Longer term bond rates are currently close to 8,5% and shorter term money market rates just below 7%.

The Rand:US Dollar exchange rate is around the R13,74 level. The stated mandate of the Reserve Bank is to use its repo interest rate as the tool in order to manage CPI inflation between the 3-6% target range. Over the past six years our CPI inflation has been within or close to the upper limit of this target range.

Believe it or not it was as low as 3,2% in September 2010 down from the recent peak of 13,7% in August 2008. Our prime interest rate similarly fell from a peak of 15,5% in June 2008 to a low of 8,5% by /July 2012 and then from January 2014 has slowly crept up in increments to the current 10,5%. The next monetary policy committee meeting is between 22-24th November and this will be the 6th and final meeting for the year.

At the moment all indications are that interest rates will remain unchanged. The great thing about our recent experience is that it shows a clearly predictable strategy by the Reserve Bank with relatively small adjustments in rates eliminating the volatility of the past. Within an economy predictability and clearly communicated strategies are good for planning and investment.

On the property market front, FNB have reported that across all of South Africa's six main metros there are signs of a broad slowdown as measured by both house price growth and the volume of transactions. By analyzing the data across categories of house prices ranging from low income areas to upper income areas the house price growth currently measured ranges from 6% per annum for the low income areas to 3,3% per annum for the middle income areas and 3,9% for the upper income areas.

If house price growth is measured as quarter-on-quarter, this shows us the more recent growth momentum and trend and demonstrates slowing across all the price categories at a faster pace. Transaction volumes can be useful to analyze in order to gauge market strength.

Currently all four income categories are showing an annual decline in the number of transactions of around -2% to -4%. Tighter economic times are the ideal opportunities to source properties that offer above average value.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.