CAPE TOWN (October 08) – A further interest rate increase this week could be substantially detrimental for the lower end of the residential property market and particularly the first time buyer, according to RE/MAX of Southern Africa.

 Although the country's largest real estate group posted a 13 percent increase in sales for the first nine months of this year over the same period of last year, Jeanne van Jaarsveldt, marketing and financial director says the market is definitely showing signs of stress.  Price growth was slowing, sales were taking longer and clear evidence was emerging of the market entering a new season of bad debt and prospective repossessions.

 Part of the Monetary Policy Committee's business on Wednesday and Thursday at their bi-monthly meeting will be the evaluation of the current interest rate situation. The rate was increased by 50 basis points at the MPC's last meeting in August lifting the base home loan rate to 13,5 percent.

 That hike, says van Jaarsveldt, in the wake of five earlier increases was the “straw that broke the camel's back" for marginally financial able home-owners.  Van Jaarsveldt says chances of a rate hike or not by the MPC at this stage appeared to be fairly equally balanced.

 CPIX remained above the 6% upper inflation target for the fifth consecutive month during August 2007. On the inflationary upside of the economy, the rand had slightly strengthened to below the R7,00 per dollar mark. These two drivers were key opposing forces of the rate either being increased or left unchanged.

 Van Jaarsveldt said another increase would not only affect the buying and selling or property, but would have far reaching effects on the property related industry.

 "The current real estate market contributes 21% to the National GDP and a further rate hike will further impact a cool residential property market, whilst some Financial Institutions are faced with increased repossessions and bad debt in terms of consumers that are unable to continually service their household debt and mortgage repayments.

 RE/MAX of Southern Africa believed the current home loan base rate of 13,5 percent should remain unchanged for the remainder of 2007 and hold firm at least until early into 2008. This would help drive consumer confidence and stability in the already fragile residential property market.

 Van Jaarsveldt believed the marginal slowdown in credit extension as a combined result of the recently introduced NCA as well as the combined three percentage point interest rate hikes in the past 15 months should give the Reserve Governor enough confidence to leave rates unchanged this week.