Monthly Archives :

November 2013

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Interest rates to remain the same in 2014

The Reserve Bank Monetary Policy Committee (MPC) held their final MPC meeting for the year on Thursday, 21 November 2013. In a unanimous decision, the South African Reserve Bank has kept the interest rate unchanged at 5%.

Annabel Bishop, who is the Chief Economist at Investec forecasted this decision. In earlier statements, she said that the repo rate will remain unchanged even in this current economic climate.

The Rand and the bond yields market remain influenced largely by Federal Open Market Committee (FOMC) communications and US data releases. This is because foreigners hold a third of SA’s Rand denominated bonds and yields have increased throughout the 10 year government bond which is now recorded at 7.70 percent in SA. It was at 6.74 percent last year.

The Rand has strengthened in the last week to R10.10 against the US dollar, R13,64 against the Euro. However, even though some expect a hike in interest rates, the economy continues to be slow and is performing below its potential rate.  It is based on this that Bishop made the presupposition that interest rates will not increase especially while economic growth is so low.

Adrian Goslett, CEO of RE/MAX of South Africa said; “It is quite likely that we will start seeing the interest rate increase during 2014, which will put slightly more pressure on those with already high-debt-to-income ratios. Consumers have enjoyed a remarkably low interest rate for the past few years with the prime interest rate dropping by a staggering 5.5% since the property boom, which has opened up several opportunities to buyers who were previously unable to afford property. Aspiring homeowners that have waited it out before taking the opportunities presented in the current market may soon find themselves missing out if they do not act now.”

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When is the right time to buy property?

There has become an increasing appetite for South Africans to invest in property – whether it is buy-to-let property or listed property. Property has been seen by many as a low risk investment with the potential of producing excellent returns.

There are many different opinions on whether one should “time” their purchase depending on the value and return on investment that is associated with the purchase. This is usually a factor for people looking to buy and sell a house relatively quickly. However, Dr. du Toit, a specialist in this field notes that, “Trying to ‘time’ the market, as investors in shares on the stock exchange do, is only necessary for those who are speculating with property. Speculating – buying with the hope to sell again quickly at a significant profit – is not property investment”.

He further explains this point through illustrating the value of a home in the mid –eighties versus how much it would sell for in 2005. “In the mid-eighties, you could buy a spacious four-bedroom house with a double garage for about R100 000, and a two-bedroom flat for R25 000. That same flat was selling for R400 000 in 2005. If you had bought it in 1985, it would have been paid off by 2005, worth a whopping R400 000 and producing a passive net rental income of R2 500 per month! Today, it would be worth closer to R500 000 and it would still be producing a rental income “only now that rental income would be around R3 500! Had you known this in 1985, would you not have considered it a good time to buy, irrespective of the property price growth rate at the time?”

That is why it is important to understand that the best time to invest in property in South Africa is now. While short –term fluctuations may be a factor for some it should not be. If you were to fast forward to 20 years from now to 2032, you will see why there is no time like the present to invest in property.

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