PROPERTY: Plan for Possible Future Rates Increases When Buying a Home
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So says Gerhard Kotzé, CEO of the ERA property group. His views are based, in part, on comments by the Director of Standard Bank Home Loans, Funeka Ntombela, who was the keynote speaker at the recent ERA South Africa 2010 awards ceremony.
Ntombela outlined to a rapt audience her prediction of a continued upturn in the property market. But at the same time she hinted at the likelihood of future increases in interest rates, due amongst other reasons, to South Africa’s future borrowing requirements.
Adds Kotzé: “The last property bubble was fed partly by low interest rates as well as by unfettered lending and the ‘securitisation’ or bundling of mortgage bond debt into dubious financial instruments, much of it being of low quality.
“Consumers played their part in that they acted in the belief that cheap money would remain available indefinitely. This proved not to be the case and while I am all in favour of low interest rates, I believe caution should always be the watchword.
“The banks themselves are setting the tone in this respect with their conservative lending policies of the moment, but home buyers and sellers should also play their part by borrowing conservatively.
“That implies the need either for increased deposits, if at all possible, when buying a home, thus reducing the size of the bond and the associated repayments or buying less expensively on the understanding that building up a stake in property is a gradual process.
“Fundamentally it’s about avoiding a repeat of the situation where, as a result of the credit crunch, interest rates soared by five or six percent and home owners were severely stretched financially.
“The joker in the pack right now is that in a rare show of collaboration, the trade union Cosatu and the business sector, are jointly campaigning for a weakening of the rand, which would imply the possibility of lower interest rates. But don’t hold your breath would be my advice!”
Business News Sector Tags: Property|