The comment made by Reserve Bank governor Tito Mboweni last Friday that another possible interest rate hike could be on the cards, will be met by dismay by most property owners in South Africa, says Tony Clarke, Managing Director of Rawson Properties.
Many property owners have already been put under pressure by the 2,5% hike in rates since June last year. Property owners with a R500 000 bond now pay R866 more per month than they did in June last year. Those with a R1 million bond, now have to find R1 732 more to be able to pay their monthly bond repayment.
Another interest rate hike, says Clarke, coupled with the rising cost of food and fuel could put many property owners in a difficult position. Many South Africans are also now starting to reduce their credit exposure by paying off outstanding debt to make sure that they are not over-extended in terms of the new Credit Act.
'Increased interest rates could make this more difficult as many South Africans may now find that their various repayments have become too much to bear'
The reasons that Mboweni gave for a possible hike in interest rates include combating inflation that has breached its 3% to 6% target for three months in a row, and the current 'uncomfortably high' credit demand.
Clarke says that the effects of the new Credit Act are already becoming apparent.
'We are now seeing consumers start to reduce their credit exposure to make sure that they are within the requirements of the Credit Act when applying for a home loan. We are also seeing a slow-down in property sales, especially in the lower end of the market. This has also been evident in other industries that operate largely on credit, like the car industry.
'The Credit Acts impact on the countrys economy will take longer to be felt,' said Clarke.
'Traditionally, economists wait a quarter before reviewing the effects of big policy changes. I believe that the Act will lead to a stabilisation of prices, reduced inflation and less exposure to credit, just as the Government intended. However, the effect needs to be properly measured before another adjustment to interest rates is made'
