“The latest rate cut announcement on Thursday 18 Nov 2010, which takes the prime South African interest rate to 9% and the lowest it has been since 1974, could see a marked improvement in the residential property market as early as the first quarter of 2011. The culmination of the rate cuts, and especially the latest one which was largely unexpected, is bringing affordability back into the market and this in turn will have a positive impact on consumer confidence.” This is according to Bruce Swain, Managing Director of Leapfrog Property Group.

“However, in as much as this is good news for over-indebted consumers, any sudden or marked increase in interest rates in the next six to 12 months will send consumer confidence right back to low levels again – it would be a set-back for property market recovery as South Africans have become increasingly risk averse and cautious of any financial uncertainty and long term commitments. What we need now is stability and consistency throughout 2011 to further convince consumers that these are not short-lived measures,” says Bruce.

“Now is the time for consumers to use this financial relief brought by a further rate cut to pay off short term debts as expediently as possible, especially credit card debt which is very expensive. South African property buyers need to heed the important lessons out of the sub-prime crisis, such as building extra buffers into household and bond repayment budgets that allow for the impact of rate increases which although not expected soon, are inevitable.

“Property owners already in the market can start looking forward to a firming of property prices and sustainable growth in market values, meaning owners can once again build up equity in their property. With inflation also firmly under control we should definitely start seeing the equity gap growing as early as the first half of 2011,” says Bruce.

“Notwithstanding the expected firming of prices, serious sellers need to be realistic in their pricing as to a large extent buyers are still very much spoilt for choice with a surplus of good value-for-money properties available on the market.

A final word of caution - now is not the time to throw caution to the wind. “Next year we face the next round of electricity price hikes of at least 25% and fuel prices will inevitably continue on a upward curve. The bottom line is we still need more financial responsibility in the market place. Consumers seem to have already forgotten the reasons for the economic crash and there is an alarming and widely held belief that cutting interest rates is the panacea for all financial woes without changing spending behaviour and relooking attitudes towards getting into debt and managing credit – we must avoid creating a fool’s paradise,” warns Bruce.

“We need to accept that South Africa faces many new, complex economic challenges and there is a need for realism. Now is the time for prudent financial management - use the favourably low South African interest rates to reduce debt, take back your financial security and stability, and build a solid foundation for future home ownership,” concludes Bruce.