Drivers of the Property Market (The Bugle)

The fundamental drivers of the property market are the price and availability of finance. The price is measured by the interest rate and the availability by the bank’s willingness to lend money and the criteria they attach to this. Not all banks have the same lending criteria and these do change from time to time. At Seeff we regularly update and provide our clients with the most current published banking lending criteria to assist prospective buyers to understand how an application for mortgage finance will be viewed.

The published statement of the South African Monetary Policy Committee (MPC), which was delivered by Governor Gill Marcus on 19^th July 2012, provides a detailed insight into economic developments both locally and globally, and stated that the SARB repurchase rate would decrease by 50 basis points (0,5%) to 5% from Friday 20^th July 2012. This is significant as it is the first interest rate relief our economy has had in 610 days. Interest rates were last reduced on 18 November 2010. The immediate impact is that all the major banks immediately decrease their prime and mortgage lending rates by a similar amount, taken these to 8,5% from 9%. 

The MPC’s inflation forecast has been revised downwards. They now expect CPI inflation to reach a low of 4,9% in the second quarter of 2013 and to remain fairly stable around the 5% level to the end of 2014. The breakdown of CPI inflation is interesting as it indicates that some components have increased more significantly than the overall published rate. Year-on-year CPI inflation for all urban areas was 5,5% in June 2012, down from 5,7% in May. Food prices increased by 6%, petrol by 14,2% and electricity by 17,1% on a year-on-year basis. Core inflation, which excludes food, petrol and electricity is currently measured at 4,6%. Those households, which spend a higher proportion of their income on food, transport or electricity are therefore actually exposed to a higher personal inflation rate. 

The MPC statement highlighted the deteriorated global economic outlook with the Eurozone crisis unresolved, a slowing US economy in the second quarter and a UK economy currently in recession. China’s growth was recorded at 7,6% in the second quarter, its slowest since 2009, and even Brazil and India are experiencing materially slower growth. With the world being a global village, our domestic economy has also slowed and the current GDP growth forecasts are 2,7% for 2012, 3,8% for 2013 and 4,1% for 2014. The MPC is however quick to say that the risks are on the downside as South Africa, as a small open economy, will be impacted by developments in the US, the Eurozone and our other large trading partners.