Rate cut on the cards?

Posted On Monday, 02 July 2012 12:52 Published by
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With the global credit crisis and the continuation of sovereign bail-outs, it appears that uncertainty remains the only certainty. And coupled to low economic  growth, global interest rates are set to remain at historic low levels for longer than was thought perhaps only a few weeks ago. Similarly for SA, we can expect the low interest rate cycle to ride for a little longer which is ultimately good for direct and listed property. Pointing to mortgage advaces, some are suggesting that rates will in fact come down further

 

With the cost price index (and inflation in general) likely to continue to stay below the 6% upper limit (it is already at 5.7%) and with South Africa’s economy now feeling the effects of significant reductions in exports to Europe, the South African Reserve Bank’s Monetary Policy Committee will ‘almost inevitably’ find itself able to reduce its interest rates so as to stimulate economic growth, says Bill Rawson, Chairman of the Rawson Property Group.

“A cautious move by the MPC would be to cut the rate by 0, 25% in the very near future”, says Rawson, “but as I read the signs now Gill Marcus is likely to be a lot bolder.  Certainly in the housing development and marketing sectors we are hoping for an initial 0, 5% cut followed by a further 0, 5% cut before the end of year.

“In residential property such a move is now sorely needed,” says Rawson, “especially as one now sometimes gets the impression that the government is not aware of how severely the National Credit Act has hit homebuyers, particularly those at the lower end of the scale struggling to get bonds.  The state’s repeated statements about creating a home-owning nation are beginning to ring a little hollow.”

Just how serious the situation is, says Rawson, has been shown by the latest Korbitec figures on bonds:  the number awarded in May 2006 was just over 60,000.  In recent months that figure dropped to an average of around 17,000, with an all-time low of 9,000 in May.  There are, he adds, as yet no signs of a pick-up on the horizon.

“The truth is that if even one bank was able to operate without such strict observance of the National Credit Act regulations it could double its bond awards overnight and in my view this could be done without seriously affecting its risk profile.”

Instead of going for long term loans, said Rawson, the banks are currently focusing on short term, unsecured loans - which he and others regard as a dangerous tactic. “This policy was at one stage adopted in the UK but was proved to be too risky.”

Rawson also comments that among South Africa’s businessmen, most of whom, he says, are highly socially aware, there is now genuine concern as to the lack of accountability that state and provincial authorities have in spending hard earned tax money. 

“This is typical of many emerging countries where the newly elected politicians, having never been involved in work creation, are only too adept at wealth distribution – to no good effect.  This, I believe, is particularly true at the moment in the educational field in South Africa.

“After 18 years of democratic rule and a massive increase in the education budget we might justifiably have expected to see real improvement in the ability of matriculants to get jobs or qualify for entrance to the techikons and universities.  However, this has not happened.

“This, in turn, means that South Africa is not creating the educated middle class about which there has been so much publicity at anything like the rate it should be and that, the huge influx of new clients into the middle class housing sector is not nearly as fast or dramatic as we had hoped for.”

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