Advice and Opinion

Moody's rating encouraging for South African residential property sector

The South African Reserve Bank’s decision to hold the repo rate at 5%, thereby ensuring that the country’s banks’ prime rate stays at 8,5%, has been welcomed by the SA residential property sector because, in the current tight economic times (with SA’s 2013 GDP growth now predicted to be only 2%) it could encourage potential home buyers to take the plunge. This was said recently by Bill Rawson, Chairman of the Rawson Property Group. 

“As so many business media have recently pointed out,” said Rawson, “the current prime rate level has not been seen since 1973 — and it does make bonds much more affordable. Business Report has pointed out that on a R1 million bond taken out in December 2008 the monthly repayments have now dropped by R5,175.”

Those who do not take advantage of the current exceptionally low rates, said Rawson, will in three years’ time, when an economic upturn can be expected, be regretting their decision because house prices are still rising by around 9% per annum.

Even more significant and encouraging to the home sector, however, said Rawson, is the fact that Moody’s, the respected rating agency, have kept their rating on South Africa’s debt position unchanged, although many had feared a further downgrading.

“This is very good news,” said Rawson, “because it means they see many positive factors in the way South Africa’s economy is being managed right now.”

The reasons given for this decision by Moody’s, said Rawson, include the Department of Finance’s proposed moves to implement measures to reduce state spending and prevent South Africa’s economy being further undermined by excessive civil servant and trade union pay increases.

“Moody’s,” said Rawson, “also report that a “peace pact” involving the Association of Mine Workers, the Construction Trade Union, the National Union of Mine Workers and the mine companies is now more than possible.”

By October, when the next medium-term budget is introduced, said Rawson, the business media are predicting that Moody’s will have gained a clear impression of whether these measures are really going through. If little progress is made, it is probable that a further disastrous downgrading will follow and an economic recovery will be even more difficult to achieve, he said.

“If that happens the housing sector will be the first to suffer. Residential development and home ownership will decline and the unfortunate trend towards renting will continue — but with a steady lowering of standards.”

“Again, however, there is a lesson to be learned: now is the right time to be investing in property. In unstable times, like the present, history has shown that property emerges from the downturns more sought after than ever.”

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