Recently, the South African Reserve Bank reduced the repo rate by 25 basis points but the real interest rate remains far too high to spur meaningful capital investment by South Africa’s private sector. While the news brings some welcome relief to property owners, it’s another disappointment for the country’s real economy.

This is according to Renier Kriek, Managing Director at Sentinel Homes. “The SARB has consistently preached that their policy bible contains only one chapter, titled ‘inflation targeting’, which requires sticking to within their 3–6% inflation target band and anchoring inflation expectations at the 4.5% midpoint,” he says.

“Their messaging has consistently and unfailingly pledged that their mandate is the only consideration that guides their decisions.”

False policy
Yet, inflation has remained low over an extended period, currently sitting at 2.8%, leaving the opportunity for a softening of monetary policy wide open. Why then has the SARB stubbornly refused to reduce the interest rate accordingly, even as inflation hovers at or below the bottom of their target band?

Despite preaching vague and opaque ‘risks to the upside’ to justify their hawkishness in recent years, it’s clear that the  SARB has been disingenuous – in short, they have been lying to us. That was made plain for the first time today, but it has long been evident there is a secret driver of their decisions.

“It was clear with the announcement that the SARB’s policy bible has contained a new chapter, which is their anticipated future mandate, and they have already been guided by that expanded gospel, despite the existence of the chapter having been secret and further despite the content of the chapter not having been agreed to with Treasury and other stakeholders,” says Kriek.

Why now?
The argument advanced by the Monetary Policy Committee, by way of Governor Kganyago’s statement and answers to questions during the press conference, is that the MPC wishes to deal a decisive blow to inflation in the long term, transforming the SA economy to a low(er) inflation economy.

This will also mean lower interest rates for longer in future, per the MPC’s reasoning, since lower inflation economies generally tend to have lower inflation rates.

“However, the question is why do we want to do this now?” says Kriek. “Moving to a lower inflation target will likely have long-term positive consequences for the SA economy, but it will also involve near-dated discomfort. Essentially, the MPC is promising short-term pain for long-term gain.”

“The SA economy is a very frail patient at the moment and keeping interest rates at current high levels in order to achieve longer-term outcomes is a risky gambit. We should at least be asking, and this is as much about political calculation as economic policy, whether we should not attempt monetary stimulus first, getting the economy out of its bandages, and attempt the MPC’s incisive reforms once the patient is back on its feet.”

Impact of delinquency
The property sector has shown signs of broad-based recovery, with price lines across all the metros trending upwards in Stats SA’s latest Residential Property Price Index.

The cumulative 75 bps cuts, with a further cut at today’s meeting, have already had the effect of bringing previously pent-up demand spilling into the residential property market. However, while these are green shoots, the market is still under significant strain.

According to National Credit Regulator statistics, home loan delinquency is up 35% in the last 3 years, signifying the tremendous pressure households are experiencing related to their finances.

“This sharp increase in delinquency will come home to roost soon, as a sudden influx of distressed stock in the market is likely to drive prices down in the face of relatively tepid demand,” says Kriek.

A small window of opportunity
Households seeking to enter the market should not delay any further. The MPC found that a neutral policy should be 25 bps lower than the new repo rate of 7.25%, meaning we can expect at least one more cut in the near future.

So, it is more likely than not that the upwards momentum evidenced by the aforementioned green shoots will be sustained and expanded as the market adjusts to lower rates.

The decision at the next meeting will be led by the MPC’s insistence on pre-emptive management of monetary policy through its anticipated new mandate, and so the CPI inflation reports from now until the next meeting in July 2025 will have to be watched closely.

“It seems that if inflation inches higher even slightly, the MPC’s overly hawkish instincts will rule decision-making at the next meeting, favouring keeping rates steady despite low employment and flaccid economic growth,” says Kriek.

ENDS

It's not easy to get a mortgage on your dream home if you're not employed full time and earning a fixed salary. Freelancers, those working on commission or sourcing their income from gigs, and many other independent earners, often find themselves facing a brick wall when applying for a home loan from banks.
 
However, more people than ever are becoming self-employed in these fields and are seeking easier alternatives to a traditional mortgage bond. This is according to Renier Kriek, Managing Director at Sentinel Homes, which specialises in financing home ownership through instalment sale agreements.
 
How does it work?
"Instalment sale agreements are steadily becoming popular not just among those that do not qualify for a bond but also many who do not fit the salaried mould for which the mortgage model was specifically developed," says Kriek.
 
An instalment sale makes acquiring a home similar to buying a vehicle on hire purchase. In Sentinel's case, the company finances the purchase and the buyer repays the value of the property in monthly instalments.
 
Although the company holds the title deed, the buyer enjoys all the rights and responsibilities of ownership during the period of the contract. Once the purchase price is repaid in full, total ownership is transferred to the buyer.
 
"On the surface, there is little difference between buying with a bond or via an instalment sale," says Kriek. “The only practical difference is the procedure followed when the buyers do not pay their instalment, but even in that case, an instalment sale is to their advantage.”
 
However, an instalment sale agreement offers several advantages to this class of homeowner.
 
Improved affordability
Because a freelancer or a self-employed person’s income may vary from month to month, the bank will only consider a portion of their earnings. So, even if they qualify for a home loan, they will likely have to settle for a cheaper property or fund any shortfall on the purchase price themselves.
 
Through an instalment sale, up to 100% of their income is assessed. “This gives the purchaser more freedom to choose a property they really want,” says Kriek.
 
Improved credit score
An instalment sale allows a buyer to acquire a valuable asset sooner and improve their credit score in the process. As the property’s value increases and their financial position grows over time, they may become a more attractive borrower. And they do not risk being caught in a rent trap while the values of homes continue to increase.
 
"Many of our clients have been granted bonds on the basis of their instalment payment history and were able to settle our instalment agreement early from bond refinance," says Kriek.
 
Lower default risk
When a borrower defaults on their mortgage, they face losing their property through a sheriff’s auction, having adverse judgements against them, and being blacklisted for 5 years or more. This impedes their ability to acquire another property and obtain any credit, and may even limit employment opportunities.
 
However, with an instalment sale agreement, they have more options, including negotiating their position and, ultimately, selling the property to pay off their debt. "Even then, they retain a clean record and we have assisted clients that eventually recovered from such a position to buy another property," says Kriek.
 
Protected by law
As with a mortgage, the contract is governed by the very comprehensive National Credit Act. Another law, the Alienation of Land Act, also applies, ensuring the rights of the parties to the agreement are fully protected. Instalment sales are also registered against the title deed of the property.
 
A growing market
As more people start to freelance or work in other independent fields with irregular income, owning a home through an instalment sale agreement promises a logical alternative to mortgage bonds.
 
"It is apparent that an instalment sale agreement offers better advantages, more protection and greater flexibility to those who dream of owning a home without sacrificing their financial independence," says Kriek.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Home