What everyone wants to know about Interests Rates cut

Another 100 basis points down, brings Prime interest rate down from 15% to 14% as announced 5 Feb09!!!

That is a saving of R732 per month for every One Million Rand debt.

Combined with December's cut of 0.5%, consumers are now paying R1103 per month less per million Rand debt.

John Loos, FNB's Property Strategist, feels that there is strong pressure to continue rapid reduction of the Prime rate, down to 12% or even lower.

Cees Bruggemans, FNB's Chief Economist indicates strong support for another full percentage cut in April, followed by another possible full percentage in June to 12%, with further possible 0.5% cuts following that, depending on global changes, most likely settling down to 11% in October this year, stabilising through 20100.

For property investors, this might suggest that the current buyer's market will start to ease off and turn within a few months, with bargains starting to become difficult to find by September or so. We have had a great window of opportunity to snap up property bargains in the last few months, but time is running out. Now is the time to grab a few more bargains.

Once the impact of softening household debt ripples through the economy, demand for property will start rising again and the bargains we purchase now, will start appreciating before the end of 2009. If these investment (BTL) properties are cashflow positive already, then the equity we gain during the next run will turn them into small goldmines through very careful refinancing.

As in all business, in every commodity, the trick is to buy low and sell high. The property market has crashed, so now the prices are indeed low. Selling high does not require selling off of the properties, we can sell equity to the banks later when the market has turned, while in the interim we should be earning some cashflow from these bargain properties.

Its a win-win situation for everyone! Except for those who were over-exposed, who could not service their shortfalls and are forced to sell their treasures at below market value to escape the doldrums.

We must just make sure we are not in the same boat at the top of the next run...
Refinance carefully, in the first half of the run, then stop well before the bubble bursts again, as it will inevitably do in 7 or 8 years again. Keep some reserve equity in each property, i.e. gear to maximum of 80% if at all possible.