An increase in interest rates will undoubtedly put something of a damper on the property market recovery that is currently underway, says Shaun Rademeyer, chief executive officer of BetterBond Home Loans.
Priced at R13 million, this four bedroom home in Houghton, Johannesburg is selling through Ennik Estates. Click here to view.
He says the latest increase has taken us exactly where we were before the last post-recession rate decrease in July 2012, and since then, there has been huge increase in the demand for property even though consumers have had to contend with fuel and electricity price hikes and other significant cost-of-living increases.
Even then, it would seem many are still buying property – because of growth in population, relatively low growth in house prices and the banks’ increased appetite for long-term rather than unsecured lending.
“The major one is that many consumers have worked very hard since 2009 to clean up their credit records, reduce their debt loads, and not take on any new credit,” says Rademeyer.
Consumers, he points out, are in much better financial shape now, and actually much more able to deal with moderate rate increases, than they were at the start of the recession five years ago.
For those who already own property, a homeowner with an existing 20-year bond of R900 000 taken at 8.5 percent will see the minimum monthly repayment rise by almost R300, from R7 810 to R8 098.
He advises those who have established a good payment record, and whose financial position has improved since their bond was granted to approach their lender now and see if they can negotiate a reduction in this differential.
Alternatively, if they are worried about further rate increases, they may want to consider fixing their interest rate for the next few years.
At an interest rate of 9 percent, that qualification level rises by just R1 000 to R19 000 a month – while the monthly repayment rises from R5 467 to R5 668, he says.
Banks usually charge a premium for this, but some consumers consider it a small price to pay for certainty when it comes to budgeting.
First-time buyers who qualify for home loans should buy now, he says, noting that their data shows that the average home loan currently required by first-timers is around R630 000, which at an interest rate of 8.5 percent meant a household income of around R18 000 a month was required to qualify.
At an interest rate of 9 percent, that qualification level rises by just R1 000 to R19 000 a month – while the monthly repayment rises from R5 467 to R5 668, he says.
Bill Rawson, chairman of the Rawson Property Group, says it looks as if we could see the repo rate being raised by 50 basis points at all forthcoming meetings of the Monetary Policy Committee meetings, giving us an 11 percent standard interest rate within the not too distant future.
Banks are also likely to tighten on lending, however, he does not foresee house prices falling because in the middle and lower price brackets stock shortages continue to be almost endemic and are unlikely to be alleviated soon.
In fact, rentals will increase making this a cheaper option for many as they cannot afford to buy.
Rawson warns those already owning homes and paying bonds will probably have to tighten their belts still further to maintain their monthly bond payments and take on second jobs if possible to make ends meet.
Despite an increase in interest rates, buying conditions remain positive says Herschel Jawitz, chief executive officer of Jawitz Properties.
Jawitz says property prices offer good value relative to the peaks of 2007 and 2008, combine this with interest rates that are still at historic lows and it is easy to see a more positive picture than is painted by economists.
A one bedroom apartment in Durban Central is selling for R325 000 through Rawson Properties Durban City. Click here to view.
Consumers are still under pressure and this will continue for some time, however, he says the increase in activity in the market is most noticeable at the lower and middle end of the market where debt, price and interest rate sensitivity is highest.
The answer may be in terms of a shift away from short-term retail spending and into residential property.
Residential market conditions are also fuelling a more sustained recovery in property prices, which recorded real growth in prices in 2013.
He notes that in the metro areas, there is a shortage of stock at all price levels, with more buyers and less stock, prices are moving upwards – albeit gradually.
Reasons for the shortage include many potential sellers waiting for the market to improve before they decide to sell i.e. less financially distressed sellers and those who are reluctant to sell until they have found a property to buy, explains Jawitz.
There are still challenges ahead if or when rates increase again and this may impact on consumer confidence, which ultimately may be the most important determinant of where the residential property market goes.
“If consumers feel that it is time to adopt a ‘wait and see’ approach, then the current activity may soften slightly,” he says.
According to Ronald Ennik, chief executive officer of Gauteng-based Ennik Estates, luxury homes marketer, the residential property market will continue to settle into a “new normal” mode that is more realistic and more sustainable.
Ideal for buy-to-let investors, this apartment in Sea Point, Cape Town is selling for R795 000 through Jawitz Atlantic Seaboard. Click here to view.
Ennik says the halcyon days of 2005/6 (before the mortgage origination business collapsed) were never normal, and are unlikely to be repeated, pointing out that also unlikely to be seen again is the prolonged laager mentality that has kept the bulk of buyers and sellers out of the market since 2008.
Furthermore, Ennik says prior to the rate increase, they were seeing a steady trickle back into the market from demand of past years, show house attendances have improved since six years ago and more noteworthy sales have come through – at prices not seen for a long time.
“I believe this process will largely discount the interest rate increase and continue on its path,” says Ennik.
He adds that all indications are that this gentle improvement in market conditions will continue – albeit at a slightly slower pace. – Denise Mhlanga
