Greeff Properties CEO: Interest Rate Stability is a “Shot in the Arm” for South Africa's Ailing Property Market

“The Reserve Bank Governor’s decision to lower the repo rate by 50 basis points to 5% could well be the shot in the arm for the current real-estate market; particularly for properties priced from R800 000 to R2 million, which is where much of the market activity is currently occurring,” says Mike Greeff, CEO of Greeff Properties in Cape Town, South Africa, an exclusive Affiliate of Christie’s International Real Estates.

Greeff adds that bond holders or those planning to apply for a home loan can now plan, with a greater modicum of certainty, whether they can indeed afford to buy a home and what monthly budget is required in order to meet repayments.

“With talk of a new Eskom rates hike, buyer confidence could take a knock, so news of a rates drop is something of a life raft in a sea of economic uncertainty, and may even shift a certain proportion of dithering purchasers into decision making mode,” says Greeff, adding that the current drop in inflation has possibly allowed a rates cut decision to be made now as opposed to later on in the year, when it was rumoured to have been forecast.

Statistics SA reported that consumer inflation dropped to 5.5% in June, from 5.7 in May 2012. This is the lowest it’s been since August 2011. It’s also lower than the 5.6% which was forecast by economists for this period current.

“This is a great opportunity to exercise discipline and maintain your bond repayments at their previous rate, thus paying it off quicker,” says Greeff.

"For mortgage repayment of $1 million on a 20 year mortgage monthly repayments at the new rate of 8.5% would be $8678 compared with the repayments at 9% (the previous rate) which would have been $8997. This is a reduction of $319 per month. However, if you were to continue paying the bond off at 9 %, you would pay it off 21 months earlier and save yourself a total of $110 000 in interest." He adds.  

Economists have pegged the first rates hike for the second quarter of 2014. It was previously anticipated for the third quarter of 2013. Interest rates in South Africa have remained steady since 2010.