George Herald | Unchartered territory for property market

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Unchartered territory for property market
10:36 (GMT+2), Fri, 20 July 2012

PROPERTY NEWS - We are indeed in unchartered territory, says Seeff chairman, Samuel Seeff following the somewhat surprising decision by the Reserve Bank’s Monetary Policy Committee Meeting to cut the repo rate by 50 basis points to a new historic low of 5%. Assuming that the banks pass this saving on to consumers, it is positive news for consumers and will most certainly improve the affordability and the cost of home ownership, but Seeff questions whether this will have any real impact on real estate sales volumes.

We used to await the interest rate announcement with anticipation and it used to be the pre-eminent factor in determining sentiment in the market and drive demand or lack thereof. Where an interest rate cut would have encouraged more people to look around and we would almost immediately see more buyers at show days and more response to our advertisements, our experience over the past few years has however, been that, despite halving since 2008 to a level last seen in 1948, the low interest rate has not encouraged wholesale buying activity.

This notwithstanding, Seeff says that the rate cut is great news for bond holders and buyers who are ready to make their move. Subdued demand continues to bear on prices which are trading at relatively flat levels. This, together with the gradual easing of the mortgage lending criteria and historic low interest rate combine to create the best buying conditions in decades, reiterates Seeff.

Trade during the first half of this year has certainly been better than last year, says Seeff. We have increased our turnover by 20% over last year, but are still about 35% down from our 2007 turnover prior to the global financial crisis and property market downturn. On the whole, the market is still trading at about 50% below in terms of monthly property registrations. Recovery, says Seeff, remains uncertain amidst continued sluggish economic activity while consumers are by and large still struggling to reduce their household debt levels. South Africans are simply legitimately concerned about job security and economic growth and the general sentiment in the market is one of caution rather than opportunity.

Having said this, I believe that the interest rate cut will encourage those who have been sitting on the fence. Believing that prices are unlikely to drop further to any significant degree in the next year, Seeff says that those with the means to buy, should do so now.

The listless global economic conditions look set to persist at least until the end of this year. The Euro-zone, which is of particular bearing on our economy as our largest trading partner, is unlikely to see any significant uptick for the remainder of this year. We could therefore anticipate that the interest rate will remain at its current low level at least for the remainder of the year and possibly into the first and even second quarter of next year.

Buyers are in a strong position to negotiate and sellers who hope to conclude a successful sales transaction will need to continue to price conservatively. Investors looking to sell for a handsome profit, will need to wait a bit longer, concludes Seeff.

Courtesy of Seeff.