Lower Interest Rates Will Revitalise Property Market by 2010
Economists agree that as the global recession takes hold and economic growth comes under threat, interest rates will begin to decline prompting a revival in South Africa's property market by the beginning of 2010.
Even though the sub-prime mortgage collapse in the United States sent the world economy into a liquidity crisis; South African banks were virtually unaffected and still considered to be some of the most stable in the world.
Giving credit to consumers who are considered uncreditworthy puts banks in a position where they are at risk of being unable to finance debt as clients cannot pay their loans. The National Credit Act (NCA) came into effect on 1 June 2007, which has made receiving a loan from any bank more difficult than in the past.
An inflationary cycle that started in June 2006 spurred the South African Reserve Bank's Monetary Policy Committee (MPC) to raise interest rates 10 times, or a cumulative five percent, until the repo rate was left unchanged at 12 percent in August 2008.
A large number of South Africans had to sell their properties as they had exceeded their financial capacity by taking out too many bonds on existing properties and were unable to keep up with their bond payments in the wake of continually increasing interest rates.
In 2009, the direction of the property market is largely defined by what is happening globally as well as politically in South Africa.
With the introduction of the National Credit Act as well as high interest rates, loans became difficult to get approved and people were already financially stretched; this made buying property extremely difficult for many people in 2008.
Potential buyers could no longer receive 100 percent of the value of the home as a loan because the lending criteria at banks had changed. Now, before qualifying for a loan, buyers also have to put down a deposit of between 10 and 15 percent of the value of the home.
Property owners were forced to sell their properties at prices much lower than initially desired due to high interest rates. Sellers who took 5 to 10 percent off their price in the past were now having to take 20 to 30 percent off their original price.
If there is a swing in the property market in 2009 and if interest rates continue to come down, consumers will be encouraged to once again invest in property.
In the recent past, the property market was more of a buyers market as people were forced to accept lower offers for their properties.
Experts however are finally beginning to feel positive about the notion that interest rates will come down. The market should begin to pick up from the middle of 2009 and onwards. Some economists say that even though the South African property market will be fairly weak for most of 2009, it will begin picking up as we near 2010.
In the midst of global economic turmoil, South African property has been rather resilient. A decrease in interest rates is expected to pave the way for greater interest in the property market once again.
As of now, it appears that we seem to have reached the lowest point to which the property market can go, and with cuts in interest rates and salary increases, interest in the South African property market is bound to take off again.
Even though the sub-prime mortgage collapse in the United States sent the world economy into a liquidity crisis; South African banks were virtually unaffected and still considered to be some of the most stable in the world.
Giving credit to consumers who are considered uncreditworthy puts banks in a position where they are at risk of being unable to finance debt as clients cannot pay their loans. The National Credit Act (NCA) came into effect on 1 June 2007, which has made receiving a loan from any bank more difficult than in the past.
An inflationary cycle that started in June 2006 spurred the South African Reserve Bank's Monetary Policy Committee (MPC) to raise interest rates 10 times, or a cumulative five percent, until the repo rate was left unchanged at 12 percent in August 2008.
A large number of South Africans had to sell their properties as they had exceeded their financial capacity by taking out too many bonds on existing properties and were unable to keep up with their bond payments in the wake of continually increasing interest rates.
In 2009, the direction of the property market is largely defined by what is happening globally as well as politically in South Africa.
With the introduction of the National Credit Act as well as high interest rates, loans became difficult to get approved and people were already financially stretched; this made buying property extremely difficult for many people in 2008.
Potential buyers could no longer receive 100 percent of the value of the home as a loan because the lending criteria at banks had changed. Now, before qualifying for a loan, buyers also have to put down a deposit of between 10 and 15 percent of the value of the home.
Property owners were forced to sell their properties at prices much lower than initially desired due to high interest rates. Sellers who took 5 to 10 percent off their price in the past were now having to take 20 to 30 percent off their original price.
If there is a swing in the property market in 2009 and if interest rates continue to come down, consumers will be encouraged to once again invest in property.
In the recent past, the property market was more of a buyers market as people were forced to accept lower offers for their properties.
Experts however are finally beginning to feel positive about the notion that interest rates will come down. The market should begin to pick up from the middle of 2009 and onwards. Some economists say that even though the South African property market will be fairly weak for most of 2009, it will begin picking up as we near 2010.
In the midst of global economic turmoil, South African property has been rather resilient. A decrease in interest rates is expected to pave the way for greater interest in the property market once again.
As of now, it appears that we seem to have reached the lowest point to which the property market can go, and with cuts in interest rates and salary increases, interest in the South African property market is bound to take off again.
Source...