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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2018-11-30

The impacts on the Property Market

The significant news over the past week is the Reserve Bank's decision to raise its benchmark repo interest rate by 0.25% from 6,5% to 6,75%. This is the rate at which the commercial banks are indebted to the Reserve Bank and can be seen as the wholesale price of money.

The retail price of money can be seen as the prime interest rate charged by the commercial banks and this rate immediately moved from 10% to 10,25% in response to the Reserve Bank's Monetary Policy Committee's (MPC) decision. According to the statement published by the Governor of the Reserve Bank, Lesetja Kganyago, the MPC was divided on the decision to raise rates, with three of the members being in favour of a rate increase and three supporting no increase.

Their mandate and primary focus is to maintain price stability and the upward pressure on CPI inflation (measured at 5,1% for October 2018) is the driver to the increase in rates. Headline CPI inflation is expected to peak at 5,6% in the third quarter of 2019. The price of oil and the Rand: US Dollar exchange rate, weigh heavily on the direction of our domestic inflation rate and therefore our interest rates.

This therefore creates an interesting link to our local property market. When the Saudi's decide to pump more oil and thereby increase supply to the world market, or the Rand:US Dollar exchange rate strengthens, this is good news for our local property market. In terms of our national economic growth the Reserve Bank is forecasting 0,6% for 2018. For the 2019 and 2020 years their forecast improves to 1,9% and 2% respectively.

The FNB Report on the MPCs interest rate hike, describe four key expected impacts on the Property Market:

1) Confidence levels are likely to deteriorate given that SA is into the 7th year of broad economic stagnation, leading to price corrections.

2) Commercial Property Vacancy Rates are expected to continue to rise in the near term.

3) Commercial Capitalisation Rates are expected to rise in the near term, meaning prices decrease.

4) Property values are expected to continue to decrease in real inflation adjusted terms.

In the residential market the current rate of 16,3% of sellers looking to sell in order to downscale due to financial pressure, up from 11% in 2015, can be expected to gradually increase.

When faced with a property market favouring buyers, such as we are currently experiencing, astute sellers will focus on the key aspects that make their properties relatively more desirable than the other competing options in the market.

Presentation therefore becomes important and ensuring that the home is in showroom condition. This typically means cleaning, repainting, repairing and de-cluttering.

The saying "Less is More" is excellent advise. Replacing certain key visual aspects to a home such as door handles, ceiling fans, stoves, glass hobbs and extractor fans are all relatively small cost items that can make a big difference.

You will be surprised at how just attending to these basics will assist in achieving a sale.