EDITED BY EDITORIAL TEAM :: PHOTOS: SUPPLIED
Despite their disappointment, property professionals agree the Reserve Bank’s recent decision to increase the repo rate by 50 basis points was expected. In fact, several see it as potentially having a positive impact.
The decision by the Monetary Policy Committee (MPC) of the SA Reserve Bank to hike the repo rate for the 10th time in just two years by another 50bps is a huge burden for consumers and homebuyers, says Samuel Seeff, chairman of the Seeff Property Group.
HEADWIND FOR CONSUMERS
The hike takes the repo rate to 8.25%, and the base home loan rate to 11.75% – directly affecting homeowners and buyers who have had to shoulder the burden of increasing costs these last two years.
“The rate hike is a killjoy for the struggling economy, especially in view of the fallout from the Eskom energy crisis, and the market needs positive news,” says Seeff. “First-time homebuyers, many from the emerging middle class, are facing affordability challenges, and overall sales volumes have declined.”
That said, the rate is still below the average of 15% to 16%. “It is also encouraging for the market that we are still seeing the best lending conditions since 2007 with strong support from the banks,” he says. “Approval rates are still at over 80%, deposit requirements still at around 8%-10%, and buyers can often find a rate concession.”
HOW IT AFFECTS YOU
The latest 50bps interest rate hike will increase monthly bond repayments over a 20-year term by approximately:
R750 000 bond – extra R259 from R7 869 to R8 128
R900 000 bond – extra R310 from R9 443 to R9 753
R1 000 000 bond – extra R344 from R10 493 to R10 837
R1 500 000 bond – extra R517 from R15 739 to R16 256
R2 000 000 bond – extra R689 from R20 985 to R21 674
R2 500 000 bond – extra R862 from R26 231 to R27 093
Samuel Seeff
SLIVER OF SILVER LINING AHEAD
Greg Dart of specialist property auctioneers High Street Auctions says the increase is unnerving, especially so soon after the Minister of Finance Enoch Godongwana called the economy “dire.”
“We’re between a rock and a hard place,” he says. “The government is trying to lift the economic swill bucket it has created while it’s standing inside it.”
He is expecting the market to slow down for the rest of the year after the announcement and sees pressure increasing on consumers and the business sector. “But if we see an end to rate hikes in the first quarter of 2024, the market will pick up and in likelihood gain greater momentum as the year progresses,” he says.
Greg Dart
THE UPSIDE OF THE DOWNSIDE
Dr Andrew Golding, chief executive of the Pam Golding Property group says March’s higher-than-anticipated rate hike was expected to be the last in the current interest rate cycle. “With a number of local factors continuing to pose further upside risks to the inflation outlook, there is less certainty that rates are now finally at a peak,” he says.
“Positively, on the global front, inflationary pressures are showing increasingly reassuring signs of abating, while here in South Africa, headline consumer inflation (according to the CPI) eased to 6.8% in April – down from 7.1% in March.”
That said, Rand weakness and load-shedding are fuelling local costs and limiting the extent of potential benefit from lower global food and energy prices.
“While the Reserve Bank acknowledges that interest rates are not the ideal mechanism for containing inflation, the Bank is being forced to act alone – raising interest rates in a zero-growth economy in an attempt to prevent rising inflation expectations from becoming entrenched,” says Golding.
Homeowners and prospective buyers will unfortunately bear the brunt of the increase, especially first-timers who capitalised on the previous lower interest rate.
Dr Andrew Golding
REALITY CHECK
Tyson Properties CEO Nick Pearson says the increase is not all doom and gloom. He is not expecting a panic sell off of homes, a surge in bank reclamations or auction boards popping up on suburban pavements.
“People still have room to make adjustments and banks have been consistent in their willingness to assist customers to ride out economic storms over the past couple of years,” he says.
NEW OPPORTUNITIES
Acknowledging potential home buyers are under immense pressure, he remains optimistic that a lot of good could come out of this latest adjustment.
He says the local property market has been at an impasse for a while with buyers pricing their properties at between 10 and 20% higher than most sellers are prepared to pay and with homes remaining on the market for longer than they should. Pearson says this latest interest rate hike could be the reality check that South Africa’s residential property market needs.
“The market may dip for a month or two but, as more and more people are prepared to sell their houses at more realistic prices, the market will become active again,” he says. “It is often hard for the next generation of home buyers to find houses at the right price. This might be the opportunity for them to find a home at a better price and to enter the market. So, a drop in house prices might not be the worst thing in the world for the South African economy in general.”
Nick Pearson
THE LONG GAME
Carl Coetzee, CEO of BetterBond says although this latest increase was higher than expected and will impact bond repayments, it’s most likely to be the last, at least for a while. A little good news for homebuyers is that if they are able to buy property at the current rate they will have more disposable income when the interest rate drops.
Homeowners could even choose to maintain their monthly bond repayments at the same amount when rates do fall, and so pay off their bonds sooner and save on interest.
“We always remind consumers that property is a long game,” he says. “If you budget for interest rate hikes, and you hang in there when they rise, you will be at an advantage when rates start to drop, as they invariably do.”
Carl Coetzee
