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This is our final issue for 2007 |
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You will receive your next issue at the end of January 2008.
We wish all our readers a safe, relaxing and enjoyable break over the festive season.
And look forward to bringing you all the latest property news again in the New Year.
Regards Multinet
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Higher interest rates will further subdue house price growth |
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The Reserve Bank’s Monetary Policy Committee (MPC) yesterday’s hiking of the repo rate by a further 50 basis points to 11%, has prompted banks into raising their prime and mortgage rates to 14,5%.
Interest rates have now been hiked by a total of 400 basis points since mid-2006.
In recent months, according to Absa, inflationary pressures have mounted on the back of exchange rate, and oil and food price movements. CPIX inflation increased to a level of 7,3% in October—well above the 6% upper limit of the inflation target range. The upward pressure on inflation is expected by Absa to continue in coming months, especially after domestic fuel prices were increased to a record high yesterday.
Against this background, Absa forecasts CPIX inflation to peak at a level of above 8% in the first quarter of next year, after being outside the target band since April this year.
In view of these developments and Reserve Bank expectations of CPIX inflation continuing to rise up to the first quarter of 2008, the MPC hiked interest rates once again, despite indications that consumer demand and growth in credit extension are tapering off. Nominal house price growth has also recorded markedly lower year-on-year growth over the past two months from 14,4% in September to 13,6% in October and 12,5% in November.
These developments Absa believes are the result of the upward trend in interest rates since the middle of last year, as well as the impact of the National Credit Act filtering through to the rest of the economy.
The debt servicing cost of households has increased from 6,5% of disposable income in the second quarter of 2006 when interest rates were still low, to about 9,7% in the second quarter of 2007. Taking into account the interest rate hikes in the second half of this year, this ratio is expected to be above 11% by early 2008.
The affordability of housing, especially for first-time buyers in the low– and middle-income categories, will be further adversely influenced by the latest rate hike.
Consumers’ spending power has been severely eroded by higher food and fuel prices over the past number of months. In addition to this, the cumulative rise of 400 basis points in interest rates since mid-2006 have caused the average monthly repayment on a mortgage loan to have risen by more than 28%.
Nominal year-on-year house price growth is forecast by Absa to slow down further in December to average around 14,6% for the full year. In 2008, price growth of as low as 9% in nominal terms may be registered.
This will mainly be the result of factors such as the tightening of monetary policy over the past year-and-a-half, and the full implementation of the National Credit Act in mid-2007.
Mortgage advances growth, currently at 25,3% year-on-year after declining from almost 31% in October last year, is forecast to continue to slow down well into 2008 on the back of the interest rate cycle, the impact of the National Credit Act, and a slowing housing market.
article courtesy www.rodneyhayter.com
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Rates increases could reach 400% |
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Sectional title homeowners will have to be rated at between 25% and 40% of ordinary residential owners, or their rates will go up by as much 400% more than they paid before the Rates Act was applied.
So says Andrew Schaefer, MD of SA’s biggest sectional title manager Trafalgar.
Johannesburg municipality has agreed to charge sectional title owners less than other homeowners, but Cape Town is charging them at the same rate. Johannesburg mayor Amos Masondo said last week that Johannesburg wanted to encourage higher density living through sectional title development.
Sectional title bodies corporate were rated on the value of the properties as commercial buildings on single stands. Unit owners paid a proportion of those rates as part of their body corporate levies. But the new Rates Act says municipalities must value and rate sectional title units individually.
Cape Town charges its single residential and sectional title homeowners 0,00495 cents in the rand after it has applied a 35% rebate for residential property. Johannesburg will charge single residential owners 0,005 cents. It is still holding public meetings with sectional title owners to determine the best rate.
“We took five Johannesburg sectional title properties at random (see graphic),” says Schaefer. “And found that individual rates paid by individual sectional title owners would increase between 127% and 424%. Some of that increase reflects a rapid rise in prices in, say, Yeoville.
“But the new rating at 0.005 cents would clearly be a painful experience for sectional title owners, many of whom in the inner cities already struggle to pay their levies at the lower rating. It’s also not entirely fair to do so, because they still occupy less land than single residential and will play a major part in the densification of SA’s cities to make them more sustainable. The body corporates also carry out many of the function of municipalities like paying in bulk for water, electricity and sewerage and having to collect them individually from occupants.”
At 0,00125 cents, Dafield Court in Yeoville and Montana in Weltevreden Park would pay over 30% more while Mont Serrate in Morningside would pay 46% less. At 0,002 cents, Dafield and Montana would pay over 100% more and Mont Serrat just under 10%.
“We think Johannesburg is smart to rate sectional title owners differently,” add Schaefer “They will be rewarded by more rapid densification and, of course, more votes from a category of ratepayer that is likely to be the majority in most cities in the next few decade.”
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