The recent 50bps repo rate hike has an impact on everyone, from property experts to ordinary individuals who have a bond to repay
South Africa’s real estate specialists have all expressed their dismay at the announcement of the recent repo rate increase. The main concern revolves around the mounting burden on the average consumer, who has been impacted by escalating living expenses as well as higher mortgage and credit payments following the interest rate increases in late 2021.
A BITTER PILL
The CEO of the Pam Golding Property group, Dr Andrew Golding, describes the repo rate increase as a bitter pill for households and businesses with mortgages and credit finance, especially SMMEs, who are already grappling with the economic impact of ongoing load shedding.
“It was hoped that the MPC would keep the repo rate increase stable in order to help support economic activity,” he says. “A pause in the upward cycle would have allowed some breathing space and stimulated positive market sentiment.”
Dr Golding says the power crisis is undermining economic activity and fuelling inflationary pressures, including food inflation, which reached a 14-year high in February 2023. “We hope the current interest rate cycle has reached its highest point, as further rate hikes could worsen the weakening economy.”
Despite all these challenges, the housing market has demonstrated unexpected resilience, says Dr Golding. The banks continue to grant mortgages to home buyers, and many people are relocating from the interior regions to coastal provinces, particularly the Western Cape. The housing market also remains active due to the daily exchange of homes among those who are moving, upsizing or downsizing in response to lifestyle and life stage changes.
LIGHT AT THE END OF THE TUNNEL?
Similarly, the CEO of Lew Geffen Sotheby’s International Realty, Yael Geffen, believes the decision to impose a 50 basis point repo rate increase is dismaying given the current economic situation.
She urges the Reserve Bank to provide some slack, as households and businesses are unable to accommodate the significant mortgage repayment hikes resulting from the rate increase.
“As far as the South African economy is concerned there’s definitely light at the end of the tunnel but it’s an oncoming train. It has to be, because no light is coming from Eskom!” she says.
Geffen advises sellers to be realistic about pricing in the current market, as buyers are looking for solid investments that will deliver in the long term amidst the uncertainty.
“The buyers are out there, but in uncertain times they’re less inclined to take risks,” she says. “They’re looking for solid investments that’ll deliver in the long term, and sellers who offer that are going to close the deals.”
BUSINESS CONTINUES
Samuel Seeff, Chairman of the Seeff Property Group says while the recent interest rate hike will impact homeowners, the continued favourable lending climate by banks is partially mitigating the effect. He also highlights the positive impact of the increased transfer duty exemption threshold to R1.1m for buyers.
Although sales volumes have declined compared to the peak of 2021, Seeff says buying and selling activity continues on a daily basis. Monthly transfers also appear to be slightly above pre-pandemic levels.
Another positive for the market is that the banks are not reporting any significant spike in financial distress. Competition among the banks means that deposit requirements are generally still below 10% and approval rates at well over 80%. This too is significantly better compared to the post-2009 period.FNB, for example, recently reported that selling due to semigration for better service delivery and quality of life still seems to outpace financial related selling in the market.
The Seeff Property Group is currently seeing a stable outlook for the property market. However, buyers are now more cautious in their decisions due to financial constraints. Although there is still a healthy market, it is crucial for sellers to set their prices realistically to attract potential buyers.
