NOMPU SIZIBA: Interest rates have been cut by a whopping 300 basis points or three percentage points this year so far. The Reserve Bank, in keeping with other central banks around the world, has stepped up in an extraordinary fashion, given the extraordinary impact of the Covid-19 pandemic and the associated national lockdown.
This means that it’s a great environment to buy a property, all the more so because of the economic environment which has led to the depreciation of property prices. To discuss this matter further, I’m joined on the line by Carl Coetzee, the CEO at BetterBond.
Thank you so much for joining us, Carl. Of course, this is a ripe environment for people who do have spare money and people who do still thankfully have an income to think about owning a property or buying one.
CARL COETZEE: Yes. It’s been quite an interesting time. Out of all the bad news of Covid and everything that it has brought to us, we’ve seen the interest-rate drop by three basis points. And, what we’ve seen so far in the market, interestingly enough, is that a lot of consumers are taking the opportunity to buy property right now. It’s the lowest lending that we’ve ever seen in the past 50 years. And we’ve seen a lot of especially first-time home buyers taking this opportunity to buy new homes. So there’s been a huge increase in that market
NOMPU SIZIBA: Of course, purchasing a property is an expensive exercise because, once you’ve done that, you have to maintain the property, you have to pay rates and so on. You also caution, in terms of the interest rate, that you need to budget for the prospect of interest rates going up when the economy improves.
CARL COETZEE: Yes, that’s correct. Obviously, when you buy a property, there are costs involved. But, at the moment, because lending is so low, it’s a good time, and it’s cheaper for you to buy a property rather than to rent. And, even though there are extra costs, like maintenance costs, that’s what you [allocate] in your budget – and that’s what you would have.
But for the first time in 50 years we’ve seen it’s a time when it’s better and cheaper for you to buy than to rent.
NOMPU SIZIBA: And, of course, if you already own a property and you’re paying your bond, there’s a benefit there, because you’re going to be paying less in terms of interest. But you also advise that, in order to speedily pay off your bond, it’s worth perhaps paying more than the automatic cut down in interest rate.
That’s correct. If you take a R1 million bond, currently, with the lower interest rate – from 10% to 7% – you’ll be paying just below R2 000 less a month for your repayment on the bond. So that’s a significant number.
If we take that over the lifetime of the bond, with the low interest rate, according to our numbers you can probably shave around 6.6 years off the duration of your bond, just keeping interest rates so much lower. So, if you are paying the same instalment that you did before, you can pay off your bond so much quicker. That’s the great thing.
NOMPU SIZIBA: That’s a huge saving. And Carl, just in terms of your observations around the property sector right now, what are you seeing? Are you seeing more properties up for sale because people are under pressure economically, and perhaps they can’t afford to keep their properties? What are you seeing? And, as much as I talk in broad strokes about the price of property coming down, what are your observations around how much property has come down this year so far?
CARL COETZEE: That’s quite an interesting concept, because property remains quite a valuable investment. In the long term you can be quite sure of that. But in terms of property prices, we expected quite a severe drop, in the notes we think FNB’s property barometer that says that property prices would come down about 12%. We are seeing that probably in house prices above R1.5 million.
But in prices in the market below R1.5 million, we see the most activity at the moment. We haven’t seen that drop in house prices. As a matter of fact, we’ve seen a 2% increase in house prices. There is still quite a big demand for properties in that sort of space.
NOMPU SIZIBA: Super. Carl, there’s more to ask, but not enough time. Thank you so much.