The decision to maintain interest rates at their current levels has been broadly welcomed by the property industry where the housing market remains in the doldrums as banks impose strict lending criteria that reduce the availability of bonds to prospective buyers.

Yesterday the  South African  Reserve Bank’s  Monetary Policy Committee chose to keep the repo rate at 5,5% with the prime lending rate at 9%. However, Reserve Bank Governor, Gill Marcus warned that if inflation did not remain in the band between 3% and 6% then interest rates might rise.

Inflation is forecast to rise to 6,3% by the first quarter of next year when Marcus hinted that there might be an interest rate hike.

Meanwhile, Ronald Ennik, executive director of Leapfrog Properties says that while interest rates are at their lowest level in more than 30 years, the reality is that banks are making it hard for people to buy houses.

“The residential property market in South Africa is not being defined by supply and demand but by the tight grip that mortgage lenders hold on the business,” said Ennik.

He says the outlook for meaningful house price growth will remain bleak for as long as the banks continue to value properties too conservatively – at times as much as 15% below the prevailing market rates.

“Agents often sell homes at prices that are 10% to15% higher than the banks’ valuations and in many cases this valuation is the deal-breaker,” says Ennik.

Currently about 40% of bond applications are rejected by banks.

“Banks still have a large number of bond defaulters on their books and are holding surplus stock from the recession over the past few years but the mortgage granting pendulum has now swung too far,” he says.

 “Until banks start valuing houses at the true market value and relax lending criteria then the property market will remain in its current recession where prices are falling and bond applications are regularly refused,” Ennik adds.