Low interest rates: good time to invest

ALTHOUGH it is quite frequently said that the major lending institutions are so averse to risk that it is extremely difficult to get a home loan, the current situation, says has many advantages for those potential property investors whose credit records are unimpaired, Mike van Alphen, national manager of the Rawson Property Group’s bond origination division, Rawson Finance.

The first advantage is that it is now predicted with some confidence that low interest rates are likely to be maintained until September and thereafter they are unlikely to rise by no more than 75 basis points before the end of 2016.

“Although I do not expect, as some people now do, that the low interest rate scenario will remain for years on end, the current low interest rates are going to be with us for some time and they do make home ownership easier than it has been since 2008.

“In my view, any investor who is not putting 25 to 30% of his capital into property at this stage in our economic cycle is making a mistake. Where else can one acquire income earning assets at such low borrowing rates,” said Van Alphen.

The second big factor in favour of borrowers is that with 45% of South Africa’s credit active consumers debarred from getting long-term home finance on account of credit record impairments, competition to serve those who do still qualify for loans is increasing. As a result, bond originators like Rawson Finance are finding that they can achieve success rates of close on 70%.

Furthermore, bond originators are now finding that there can be as much as 0,75% between interest rates offered by one lender and another and as much as 25% between the deposits stipulated.

The third factor favouring the residential property investor is that by Absa’s forecasts, this year will see the middle segment house prices growing by 8%, a 3% growth in real terms allowing for inflation, while low segment and upper segment growth will slightly exceed this figure, Van Alphen commented.

Again quoting Absa’s figures, Van Alphen said that South Africans are, it seems, slowly rejecting their tendency to incur debt on non-durable items such as cars and white goods and are once again beginning to make home ownership their priority: 77,3% of secured credit balances in South Africa and 58,9% of total household balances are now home related.

“Investing in residential property at the current time seems to me logical and one of the safest asset classes currently available,” Van Alphen said.