The South African Reserve Bank’s decision to increase the interest rate by 0.25 percentage points will reduce how much some buyers can afford and, in turn, the number of buyers competing for homes, says Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty.
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“This hike is not going to stop a serious property market. The rate is not the market. What buyers do with it is the market,” she says.
One thing the hike does is expose the difference between buyers who have calculated what they can comfortably afford and those who have simply calculated the size of the home loan they can get.
“A quarter of a percentage point increase may look small on paper, but property affordability is determined at household level. For buyers already close to their affordability ceiling, even a relatively modest increase can mean looking at a smaller home, a different location, or a lower price point,” says Geffen.
Luxury end
At the luxury end the impact is less about whether buyers can afford a property and more about how they choose to deploy their capital. “A 0.25 percentage-point rate increase isn’t necessarily going to make someone walk away from a R20 million home, but it may make them question whether they want to spend up to R50 000 a year more on the home loan repayment or whether property remains the best use of their capital.”
For the broader market, Geffen says the effect of the hike is unlikely to be uniform in decision-making. Some buyers will move down the property ladder, some will negotiate harder on price, and others may delay their purchase, while those with stronger balance sheets may continue to transact.
“The property market doesn’t disappear when rates rise; the composition of demand changes. That makes realistic pricing and an honest assessment of affordability more important than ever — whether you are selling or buying.”
