By saying that the interest rates turned downward at last, already implies the sentiment of most South Africans: being weary of our ever tightening belt over the last two and a half years. As the Repo Rate, and along with it the Prime lending rate rose steadily since mid 2006 most of us had to start drinking Ricoffee again. (the Ricoffee buying trend taken from Alan Knott-Craig, thanks Alan)
But at last most indications are that we can look forward to easier times up ahead after Reserve Bank Tito Mboweni and the MPC announced last week that the Reserve bank's key repo rate will drop 0.5%. We need to ask however, is this really a turn in the interest rate cycle? Will the intrest rate not get stuck at its current level for the next year, or even worse start climbing again?
When Tito was asked how low the rate will go, he didn't commit to any target, but did give us a clue, by saying that the MPC explored many scenarios and all showed that inflation would "come down radically"
He also gave us a significant clue, in stating that the MPC expects inflation to fall within the target range (3% - 6 %) in the third quarter of next year. This makes it pretty likely that the interest rate will keep going down up until the end of 2009, and keep stable throughout 2010.
So what does this entail for the very battered and bruised property market? I believe that we are in for some seriously exciting times in Property over the next two years. Even though it seems interest rates reached the top of the hill and is now getting ready for the pleasant down-hill on the other side, the property market takes a while to react. That is, it will take some time for people to have spare cash and be able to buy property. In current times however, when there are few buyers, and lots of renters clever investors normally makes a killing, and buys bargains.
In the current South African Property market the other factor to keep in mind is the global financial crisis, and South African banks' current strategy to make deposits compulsory on home loans. The reality now is that the man on the street, interested in buying an entry level townhouse for R650,000 will have to have R90,000 cash ready to service the deposit and transfer fees. Not a lot of guys around with R90,000 cash in their piggy banks. So, less buyers.
The fact is that before we really see a lot of properties changing hand as in 2000-2006, we will have to wait for the banks to grant 100% loans again. This might lag a while as the rest of the world struggle through its current recess.
So, in 2009 we reckon to still not see a lively property market, with lots of bargains becoming available. We should see some flutter of action towards the end of 2009 as World Cup frenzy start hitting everyone, and hopefully a lovely Property 2010 after that.