This indicates a strong downward trend, after Prime rate made a major hike from 10.5% to 15.5% over a 24 month period, then hovered there for some time before starting to ease. As tough as life was at 15.5% for the average debt-ridden SA family, let us not forget that it was in the mid Twenties, not too long ago.
So where are we headed? My guess is another 1% cut in April, followed by several smaller cuts of 0.5% each, down to as low as 12% or even lower if nothing drastic happens over this period. The potential exists to go as low as 10% and further...
Worldwide, governments use the interest rates to massage their economies, lowering rates to stimulate growth and development, or increasing rates to stifle inflation.
Its a juggling act with far too many balls in the air and occasionally they drop a ball or two, or lose the whole lot such as in Zimbabwe.
It is interesting to note the current global trend for drastic cuts, offering almost immediate relief to the populace. Australia went from 8.75% to 3.25% in 5 months, a reduction of 63% and the USA was even more drastic, from 5.25% dropping to 0.25%, a drop of 95% ! The UK dropped rates by 82.5% (from 5.75% to 1%) and Europe from 4.25% to 2% with further reductions expected next month.
We have seen a local drop so far from 15.5% to 14.0% which is a reduction of only 10%
Seeing as most repayments on newer houses and cars (and credit cards, overdrafts, etc) are almost all interest with very little capital reduction (i.e. not much debt reduction), their monthly repayments dropped drastically... or gives them the opportunity for major capital redemption if they keep the payments up.
By comparison, our rates are still VERY high!
I have a buddy in the USA snapping up bargain properties at an astounding pace, and he is paying ZERO interest! I asked him why any bank would give him 100% mortgage bonds (no deposit required), at zero interest and he calmly stated the banks are rewarded by the government to keep the economy running by keeping the money turning over... i.e. they get paid in freshly printed currency that has no underlying value, reducing the value of the US Dollar in the process.
100% bonds, no deposits to pay, and zero interest? That's heaven! He is purchasing entire apartment blocks, malls, strips, industrial hives, everything he can get his grubby little paws on and, each one is purchased well below market value... and each one extremely cashflow positive! He is basically printing money! These opportunities will become scarce within a year (or less), so he is employing a large staff compliment to seek out these properties, handle the purchases and transfers, while the going is good. Then when the bargains dry up, they will concentrate on managing this exploding real estate portfolio. He says anyone with a solid track record with the banks can now go from zero to hero in just a few months, if they just have the drive and confidence to make it happen. In less than one year, such a growing real estate portfolio can allow one to retire for life!
I am sure similar patterns are emerging around the world... some people are in serious financial trouble, while others are bailing them out at well below market value and become shockingly wealthy in the process, using none of their own cash!
(OPM, OPM, OPM!!!)
Can it be done in SA? Well, I believe so, but not on the same scale.
I have made a small start, taking one small step at a time, but so far things are looking very promising.
I bought my first rental apartment at 72% below market value (BMV). Now I have my eyes on another three in one block, from one owner, which I hope to acquire at 60% BMV. These four apartments will bring in enough income for me to stop working and concentrate on growing my property portfolio.
Its been a long and steep learning curve, with very little guidance along the way and I had to invent some rather creative financing, though I eventually found that all the resources required are quite widely available in SA, one just needs to know where.
I plan to post a short summary of the most important elements required to make this work, for anyone else interested in exploring real estate as an investment for wealth creation and developing a passive income.
Watch this space!
Please post a comment below, or email me at go2prop@gmail.com if you have anything interesting to add.
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