The coming year, says Sean McCauley, a Rawson Properties Director, could well see interest rates dropping by a further 2,5%.
Regrettably, he says, the vast majority of bondholders will then find 'other ways' of spending the cash that they formerly had to devote to bond payments - but this, says McCauley, would be a pity.
'At Rawson Properties we are trying to convince our clients to bite the bullet for a few more years if they can and pay above the stipulated rate. The advantages of doing this are far greater than most people realize'
Certain Rawson Properties clients, he says, are now continuing to pay off their bonds at the rate that pertained before the latest 0,5% cut.
'On a R900,000 bond this means that they would now be paying in another R334.00 per month. That may seem an insignificant sum but, on a 20 year bond, it will cut 33 months off the full pay back period and save the bondholder R326,000 altogether.
'Supposing, as we expect, we do get a further 2,5% drop in interest rates in 2009 but the bondholders still continues to pay off his bond at 2008 levels, he will save eight years on the repayment time and R729,000 altogetherl - a significant sum when you consider that on the model we are discussing the borrower signed for only R900,000 in all' (The interest portion in initial years of a bond, McCauley added, can consume as much as 90% of the repayments.)
The National Credit Act, says McCauley, has forced people to become more prudent about their spending, but it has not as yet inculcated a true save-at-all-cost mentality.
'Recently,' he says, 'we have seen a 5% drop in the amount of debt incurred by South Africans in relation to their disposable income - but as that figure stands at 76% it is still far too high for an emerging economy'
Asked if and when residential property could again experience the heady boom conditions of 2006/07, McCauley says that, 'other factors being equal which can never be guaranteed', while an upswing is inevitable 'because the market is always cyclical' it will probably take at least a year for South Africa to see truly buoyant residential property conditions. At the same time, he says, he agrees with his co-directors Bill Rawson and Tony Clarke that the next few months would be a good time to buy into property.
'One further interest rate cut, I believe, will result in prices starting to firm up and indeed to rise,' he says.
