The decision by the SA Reserve Bank’s Monetary Policy Committee not to reduce the repo rate was not unexpected, but some property professionals say it is a pity that the MPC didn’t use the opportunity to boost consumer spending.

A good opportunity to boost the housing sector has been missed, says Tony Clarke, managing director of Rawson Properties.

“It is disappointing that the MPC has decided to leave the interest rates unchanged. This decision appears to be based on the premise that the economic recovery is now under way and that the economy does not need a new boost, but this is certainly not true of the housing sector,” says Clarke.

“House values throughout South Africa have been held down by the large number of home owners forced to sell fast because they can’t meet their bond payments or other debt obligations. Many of these distressed sellers are working with their banks to achieve fast sales, and the banks in turn have mandated estate agencies to handle the actual selling.

“This is a necessary and, on the whole, efficient process but two facts are clear: the distressed sales will continue for a long while yet and, because they typically take place at 10 to 20% below the true market value, they depress house prices across the board. As a result, the steady recovery in prices which is now evident is taking place at a slower pace than would otherwise be the case.”

Clarke estimates the number of houses for sale under distressed conditions is well over 20 000. Rawson Properties alone, he says, has R3,5 billion worth of distressed houses for sale and has established a separate division to manage this process.

A further drop in the interest rates, says Clarke, would have freed up the market and made it possible for more buyers to enter it. It would also have reduced the number of houses being sold under distressed conditions.

“A 0,5% drop in the rates would also have stabilised house prices further and revived the housing market, especially at the lower end where first time buyers are still struggling to get 100% bonds and even when applying for 80 or 90% bonds are still experiencing high rejection rates,” says Clarke.

With inflation remaining under control and consumers still under pressure financially despite signs of the start of an economic recovery, a further reduction in the interest rate would have provided a positive stimulus, says Dr Andrew Golding, CE of the Pam Golding Property group.

“Against a backdrop of surging electricity tariffs as well as rising fuel costs and property rates, consumer spending remains constrained and household debt an issue. From a housing perspective, access to finance is still holding back a meaningful upswing in the property market. As far as Pam Golding Properties is concerned, cash buyers continue to make a significant contribution towards concluded sales, mainly in the middle to upper price ranges.

“Since the beginning of the year there has been a continued upward trend in units sold, and prices have also started rising in all regions around the country. Although April was slower because of school and public holidays, this is historically a month when the residential property market tends to be quieter.

“We believe there is still room for another reduction in the interest rate, which would help to boost economic growth and the housing market. Year on year, however, there is a steady improvement in sales over 2009,” says Dr Golding.

Herschel Jawitz CE of Jawitz Properties says the decision not to cut interest rates was expected and should not have any impact on the recovery of the residential market.

“Interest rates are at a low enough level to provide an impetus for the market to gradually recover. With the prime rate at 9.5% most people are now borrowing at single digit rates which means more people can actually afford their homes,” he says.

“What is needed more than a drop in rates is for the banks to continue to ease their lending requirements and for consumer confidence to improve, especially at the luxury end of the market. The lower to middle markets which are most interest rate sensitive - up and down - are still finding the going with the banks tough. This will continue to provide a challenge to a quicker recovery in property prices and volumes. On the luxury end, consumer confidence is the key. People have to feel good about what they are reading and hearing before they will think about spending R10m on a house.”