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www.thevillagenews.co.za
24 July 2019
MY HOME
Still a buyer's market despite lower repo rate By Stephen de Stadler Managing Director Fine & Country Hermanus, Arabella and Kleinmond
T
he South African Reserve Bank reduced the repurchase rate (the repo rate) by 0.25% (or 25 basis points, to use the accepted terminology), to 6.50%. This means that the major banks in South Africa will reduce the interest rates on loans advanced to customers by 0.25% as well. Although many commentators and economists were hoping for a 50-basis point reduction, even the 25 basis points are an important indication that the Reserve Bank wishes to stimulate consumption and thereby attempt to encourage economic growth. Having to pay less interest on loans allows cash-strapped consumers to spend more in non-banking related activities. Increased consumption leads to an increase in the monetary supply in the economy, which in turn stimulates
growth. Economic growth may also lead to the provision of higher levels of employment, which is positive at all levels of economic development. As relative exchange rates between currencies are derived in part from interest rates in the underlying economies, the other positive effect of the repo rate reduction should be an improvement in the strength of the South African Rand, relative to other major currencies. This makes imports cheaper for South African consumers, which again has a positive effect on the rate of inflation going forward. Any reduction in the interest rates should lead to an improvement in buyer sentiment, which helps to stimulate the residential property market. Sellers should welcome a possible increase in the numbers of interested buyers, but should not at this time anticipate or ask for an increased selling price. From a valuation perspective, the intrinsic value of a home is not increased when the cost of funding the home utilising debt, reduces. Buyers still have the advantage at the moment, and we are not anticipating
a change in this regard in the near future. For those who currently have a mortgage loan or bond that they are repaying, the reduction in interest rates will obviously mean that the bank requires a reduced payment. This is because the commercial banks in South Africa generally maintain the term of the loan, irrespective of changes in the underlying interest rates. However, if you can afford it, my advice is to maintain your current monthly instalment, as the reduction in the repo rate will mean that you will pay off capital sooner than you would have in the past. By way of example, if your loan amount is R1 million, the tenure of your loan is 20 years, and your interest rate was 10.25%, if you maintain your monthly repayments at your current level, you will pay off your bond within 19 years. You thus save a full year of repayments on your bond. At the current levels of interest, settling your longer-term debt sooner rather than later could be one of the best investments you will ever make.
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In closing, please allow me a moment of personal reflection. Tuesday,16 July 2019 was the day on which one of the most iconic South African musicians passed away after a long struggle with cancer. As a young undergraduate at Wits University in 1984, I remember attending the Free People's Concert and listening to (then) Juluka and being amazed at the humility of Johnny Clegg and his fundamental commitment to the elimination of racial inequality. The music and the songs will stay with us forever, but the man himself was truly an inspiration and an example that should be followed by all of us. On Thursday 18 July we also celebrated and commemorated the life and work of the man who altered the course of history and gave our country much-needed guidance and direction during a time of significant
change. President Nelson Mandela, amongst his other traits, was also a man of great humility and kindness. A man who was able to see the good in all men. If you have never seen it, find the clip online of an iconic concert held in Frankfurt in 1999, where Johnny and Savuka were performing the anti-apartheid song ‘Asimbonanga’. They had written the song for Nelson Mandela, probably the most revered South African ever to have lived, and who joined them on stage for a bit of a dance. The circle of life is indeed interesting when Johnny Clegg dies within a few days of the day on which we and the entire world celebrate and commemorate the life and service of Tata Madiba. As the great man said on the stage that night: “It is music and dancing that makes me at peace with the world.” Rest in peace, Johnny Clegg.
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