The decreasing value of the rand and the downgrading of South Africa’s financial status by reputable international monitoring agencies should be a cause of great concern to those managing our economy - and to South Africans paying off bonds on their homes, said Bill Rawson, Chairman of the Rawson Property Group.
“In the near future,” he said, “coming on top of countrywide strikes, excessive spending by the state and radical pay rises in the civil service and certain other sectors, increased inflation seems inevitable - which in turn will lead to a rise in the interest rates.”
Many people, he added, had predicted that interest rates were likely to remain stable for at least another 12 to 24 months.
“It is conceivable,” said Rawson, “that by the end of this year, inflation will be at 8% and an interest rate rise will therefore be essential to contain it. If this happens, it is unlikely that we will ever see a return to the very welcome low interest rates that have been so beneficial to the housing sector.”
If this envisaged scenario does become a reality, said Rawson, it will lead to some of those who qualified for bonds at the current low rates, struggling to maintain payments and, regrettably, to the banks probably tightening up their lending criteria again, which, he said, is the last thing we want right now.
“I have heard it said,” he added, “that the international ratings are of little importance to South Africa and can be largely ignored. This is definitely not the case: the world’s largest pension funds and other major investment bodies rely heavily on these rates and will not, in principle, invest in countries with anything but top rankings. The lowered assessment of our economic prospects will cause less foreign direct investment in South Africa at a time when it is badly needed.”
