The Monetary Policy Committee’s decision on Thursday to keep the repo rate at 5.5% and prime lending at 9% comes as no real surprise and offers a continued respite to debt burdened homeowners.

This was widely anticipated and is welcome, said Dr Andrew Golding, CE of the Pam Golding Property group, particularly against a backdrop of rising oil and food prices coupled with increasing electricity tariffs.

“Consumer spend generally remains cautious as a result of ongoing concerns regarding household debt.

“And amid market speculation regarding an end to the current cycle of lower interest rates, it is hoped that interest rates will remain stable at least for the remainder of this year in order to stimulate further economic growth, bearing in mind that job creation remains a key focus,” said Golding.

He said that from a residential property perspective Pam Golding Properties continues to see a gradual, albeit modest improvement in sales volumes and in house prices. “It should be borne in mind that we are still seeing the effects of the latter part of last year’s reduction in interest rates permeate through the marketplace, helping sustain residential sales across most price sectors.

“However, although relaxed to some extent, strict bank lending criteria continue to keep a rein on any significant recovery in the housing market,” added Golding.

He said that while it’s true that interest rates are at a historical low, first-time buyers entering the market still face affordability issues. This is “due to the higher municipal rates and increased electricity costs, among other costs inherent in the purchase and upkeep of a home, and this is exacerbated by restricted access to finance.”

“On a positive note, what we are noticing is that those sellers who are receptive to pricing their homes at realistic, market-related prices are reaping the benefits and achieving sales,” said Golding.

He said that for investors who have access to finance or with high liquidity, there are still good buys to be had, as property prices in the main have remained relatively constant over the past year or so. “Having said that, there are many areas or locations where properties continue to achieve sound growth in value, and will continue to do so, making the case for investment in property as valid as ever”.

While most remain cautiously optimistic about continued economic recovery, said Adrian Goslett, CEO RE/MAX of Southern Africa, there are definite signs of improvement. “Aside from the interest rate remaining stable, The South African Chamber of Commerce and Industry’s Business Confidence Index for January 2011, which is at 87.4, indicates a vast improvement from January 2009 (82.4) and 2010 (81.2).”

It is anticipated that 2011 will be a fairly flat year for the property market, said Goslett, as debt-to-income ratios are still at a relatively high level and as distressed homeowners continue to make use of the various bank programmes to assist them in selling property they can no longer afford.

“As there is still limited access to finance, rental markets are expected to peak while qualified buyers will be able to make the most of the property investment opportunities that are currently there for the taking, a situation which certainly won’t last forever as interest rate hikes are expected later in the year,” said Goslett.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

Residential sales improving – but bond negotiations not

Another high profile figure in the property industry, Michael Bauer, managing director of IHPC (Pty) Ltd, has said that he finds the methods by which banks issue – or do not issue – mortgage bonds to be difficult to understand and lacking in consistency.

IHPC markets and sells homes at Bardale Village near Kuils River. Bauer says that his sales team there has learned what criteria the different banks apply in assessing a client and they ‘go the extra mile’ to ensure that all their applications are fully compliant. As a result, said Bauer, a high percentage of Bardale Village’s applications are successful.

The Bardale Village sales team’s checks, said Bauer, include affordability checks, payment profiles, credit scoring, and full credit checks. These are very similar to those used by the banks. Often when the rejections come through, he said, his staff cannot identify any reason for their failure.

“In a country that needs housing as desperately as South Africa does,” said Bauer, “these rejections and delays are especially frustrating – and, of course, they cost the developers very large sums of money.”

The good news, said Bauer, is that the effect of the lower interest rates, which always take six to nine months to become evident, can at last clearly be seen. This year sales enquiries at Bardale Village have been 70% up on the last quarter of last year. However, the stricter lending criteria applied by banks and the National Credit Act have raised the required earnings threshold for potential buyers at Bardale Village: to a combined salary of about R12,000 per month, he said. The applicant’s monthly expenses and net surplus (i.e. net income less expenses) are also taken into account, as is his credit history.

Most banks, added Bauer, do have a special niche product for truly affordable housing and on these the interest rates are set at well below prime and in some cases fixed up to five years. This, he said, is a genuine contribution to the alleviation of the housing shortage and should be exploited by first time home buyers who qualify.

However, the upper limit on the housing and income to qualify for these bonds tends to make the task of the developer very difficult. For example, where a R12,000 per month income is required and the loan amount may not exceed R400,000. In practice, said Bauer, with land prices and construction costs at their current levels, it is almost impossible for some developers to produce a suitable product at this price level, although at Bardale it was achieved.

Experience, he said, has also shown that it can be unwise to mix income groups in one area – the more affluent feeling that the lower prices let down the tone of the estate. - IHFM Press Release

Mortgage Plus offers a wide range of advice on different bond options and further advice on the above. Please call us for further information on:

Complete this short form online

Call us on 011.327.4489

Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za