Advice and Opinion

SARB's recent repo rate hike unlikely to be the last for 2016

The 0,5% increase in the repo rate announced today by the South African Reserve Bank’s Monetary Policy Committee was expected by almost everyone in the residential real estate sector and was absolutely inevitable, says John Smyth, CEO of the Johannesburg headquartered bond originators Multi NET.

“With South Africa’s currency now showing an unprecedented weakness and the cost of living rising and with inflation set on an upward trajectory and likely to continue in this way and with so many South African families still apparently unable to keep their spending within a reasonable budget, we can, I believe, predict that by the end of this year not only will the rate have risen by a full 1% or more, but also that the banks are likely to tighten up on their loan criteria. The government, in theory, remains committed to the principle of home ownership, but the sad truth is that over 70% of our people will not in the foreseeable future be able to afford their own homes without some form of government assistance. For those who do own properties which they can rent out, the big consolation of the current situation,” said Smyth, “is that under the circumstances their returns will continue to rise and the value of their properties will continue to increase.”

Smyth commented that at current prices South African residential property is still eminently affordable for those who are able to qualify for a bond – and, he added, there are still people ‘out there’ whose earnings and income levels do, in fact, make them acceptable to the banks for this type of loan, but who do not as yet realize this.

“As always,” he said, “the best advice that a conscientious bond originator can give to those dreaming of owning a home someday but unsure whether they qualify is to consult with us, especially with those who are capable of steering the applicant towards a position in which he does qualify for a bond. This is sometimes easier to achieve than many people realize.”