Affordable homeowners shellshocked

Affordable homeowners shellshocked
2008/06/13

The ongoing pattern of interest rate rises is making affordable housing increasingly less affordable, and homeowners in this market sector are financially shellshocked.
The 0,5% interest rate rise announced by the SA Reserve Bank today (12 June) has prompted the head of one of the country's leading developers of affordable housing to suggest that Government should relieve the burden on cash-strapped owners and aspirant owners of homes in the lower end of the market by adjusting the structure of the interest rate system.
"The fact is that the ongoing pattern of interest rate rises is making affordable housing increasingly less affordable," says David Wentzel, CEO of JSE AltX-listed RBA Holdings, one of the foremost turnkey suppliers of fully bonded homes in the lower (R300 000 to R700 000) price bracket.
"Perhaps the time has come for interest rates on affordable housing to be capped so that the collateral damage done to homeowners in the war against inflation is reduced – if not, ideally, eliminated. After all, homes do not contribute to the inflation spiral."
To illustrate his point, Wentzel says today's 0,5% hike adds over R400 to the income required to qualify for a bond on a R300 000 entry-level affordable house.
He points out that, unlike the mainstream residential property market, buy/sell decisions in the affordable housing sector are not dictated by sentiment but by cold, hard economic factors.
"Coming on top of the previous nine consecutive interest rate increases, and given the sharp spiral in fuel and food prices, homeowners in this market sector are financially shellshocked.
"Unless there is a homeowner-friendly change in the interest rate structure I cannot see further rate increases being sustainable in the affordable homes market," Wentzel adds.
He says the impact on RBA Holdings of the persistent interest rate rises since mid 2006 has been cushioned by the fact that the group anticipated it and has systematically reduced the sizes of both the sectional title and freehold homes they offer while, at the same time, increasing the density of units per hectare – thus maximizing the use of land and infrastructure.

Affordable homeowners shellshocked