The South African Reserve Bank’s (SARB) Monetary Policy Committee has increased the interest rate by another 25bps brining the repo rate to 7.25% and the prime lending rate from 10.5% to 10.75%.
Samuel Seeff, chairman of the Seeff Property Group says that, while a rate hike is never welcome news, it was largely expected and factored in by the property market.
"That said, perhaps the Bank could have paused as a reprieve to the economy and consumers, especially in view of the growing Eskom energy crisis. There are ample reasons to do so," says Seeff.
Inflation (down again in January to 7.2% from 7.4% in December) appears to have stabilised here as in many global markets including the US where there is some expectation that the FED may now halt rate hikes as a reprieve to the economy.
Global energy prices have also settled while the Rand has stabilised. At the very least, the interest rate should now stabilise and support stability in the economy and property market. Hopefully, it seems that we could perhaps again start seeing the rate come down towards the latter part of the year.
The residential market has come off two very successful years as a result of the Covid-induced low interest rates. Seeff says despite the accelerated rate hikes since mid-2022 and the expected slowing in sales volumes, the market still ended the year on a solid foundation, and we enter 2023 with a stable market.
While there is no doubt that the higher interest rate will weigh on the market and there will be slightly fewer buyers, Seeff’s assessment is that the market will remain stable, and we should still see good activity.
People always need a roof over their heads, lifestyle needs change, and for a variety of other reasons, we will continue seeing demand in the market. We are also likely to continue seeing strong migration to the coastal areas, especially in view of the growing service delivery challenges and Eskom energy crisis.
We are still seeing strong support from the banks with mortgage lending remaining favourable for the market. Buyers should therefore not hesitate to get into the market, but Seeff cautions that they must now factor in the higher costs.
Asking prices will increasingly come under pressure, and sellers will need to heed the advice of local agents if they want to take advantage of the demand in the market.
As a guideline, due to the latest interest rate hike, home loan repayments over twenty years at the prime/base rate are likely to increase:
| Bond | Monthly bond payment at 10.5% | Monthly bond payment at 10.75% |
| R750,000 | R7,488 | R7,614 |
| R900,000 | R8,985 | R9,137 |
| R1,000,000 | R9,984 | R10,152 |
| R1,500,000 | R14,976 | R15,228 |
| R2,000,000 | R19,968 | R20,305 |
| R2,500,000 | R24,960 | R25,381 |
Want a clear picture of what you can and can't afford? Try Property24's list of affordability calculators and tools here.
Dr. Andrew Golding, chief executive of the Pam Golding Property group, says it was a close call for the Monetary Policy Committee, with commentators prior to the repo rate announcement divided between whether the SA Reserve Bank would hike the rate by 25bps or 50bps, with a few even calling for a pause in the upward cycle.
Golding days today’s hike is the eighth consecutive increase in this upward cycle. The SARB began hiking rates fairly early, and having front-loaded its tightening, is now in a position to taper as global and local inflationary pressures begin to fade, allowing the pace of global interest rate hikes, notably by the US Federal Reserve, to ease. It is hoped that we have now reached the peak of the interest rate cycle, as the repo rate is now 75bps higher than in the months before Covid.
With the consumer inflation rate marginally better than expected in December (2022), with both core (excluding food and energy) and services inflation subsiding, a case could made for a 25bps repo rate increase. Globally, the key drivers of the recent resurgence in inflation – food and fuel prices – are now easing. Not only have oil prices softened since the last MPC meeting, but the rand has also strengthened and as a result, local inflation is expected to slow towards 5% - close to the mid-point of the Bank’s 3-6% inflation target - by year-end.
With inflation clearly beginning to subside, and with policy impacting on the economy with a lag, we have yet to see the full economic effects of the 2022 rate hikes on an economy already weakened by persistent load shedding. This, some analysts argued, should allow the MPC scope to slow the pace of additional rate hikes, raising rates by just 25bps at the January MPC meeting, thereby providing some breathing space for aspirant homeowners and those with mortgages.
However, ahead of the MPC announcement, other commentators leaning towards a 50bps hike cautioned that the latest BER Inflation Expectation Survey revealed an upward drift in inflation expectations of both business and trade unions (the most important price setters in the economy) during the final quarter of 2022 over a one-, two- and five-year period. Furthermore, the local currency remains vulnerable amidst an uncertain global environment and international interest rates continue to rise, all of which suggested that the MPC would err on the side of caution with another 50bps rate hike this week.
In regard to the housing market, activity remains steady across all sectors, buoyed by favourable bank lending as well as cash buyers – particularly in the luxury market, and with sought after nodes continuing to experience high demand.
Although the higher interest rates have impacted on first-time buyers, with ooba statistics revealing that applications from this sector slipped to 45.8% in December 2022 – the lowest level since early-2017, overall approval rates continued to rise in December, according to ooba, with both the trailing effective and first-time approval rates approaching previous record highs.
Encouragingly, banks remain competitive with the average concession relative to prime declining to -0.8% in December, which is the most competitive rate available to local homeowners since the final months of the global financial crisis in 2007/08. Furthermore, while 100% bond applications have slowed, applications for loans exceeding 100% of purchase price have risen from 1.3% in mid-2021 to 3.5% by December 2022. (Source: ooba).
'Potential and current homeowners should focus on what they can control and be prepared'
We have all seen some alarming headlines in the news over the past couple of months, surrounding interest rates, the cost of living and the likelihood of a global recession. “We are all experiencing trying economic times,” says Antonie Goosen, Principal and Founder of Meridian Realty, however, he goes on to say, that potential and current homeowners should focus on what they can control and be prepared.
Goosen notes that according to Statistics South Africa, data shows that inflation slowed to a seven-month low of 7.2% in December. He also believes that we are heading towards the top end of the interest rate cycle and that there will probably be some relief towards the end of the year or early 2024.
He says that interest rates are high, but also says that things could be a lot worse. “The country has experienced double-digit interest rates in the past and come through it,” he says. What he suggests is sound planning and decision making. He says, “If you are unsure, ask a financial advisor and real estate agent. Use tools at your disposal too, like the bond repayment calculator. Remember, we are coming off the back of a record low interest rate in 2020. We all need to keep sound of mind until the reprieve hits, which I believe will be late in the year or early in 2024.”
Tony Clarke, MD of the Rawson Property Group, says with interest rates climbing yet another 25 basis points today, it is clear that the SARB is intent on further curbing inflation. “Understandably, people are feeling the ever-increasing pinch of this recent series of hikes, but in the long run not doing so will be more harmful than raising interest rates.
“A potential hold on the rate could follow in May and July, with the latter part of the year seeing another 50 basis point increase in total. Looking even further ahead - if current hikes have the desired effect - we could start seeing reductions in the latter part of 2024.”
Homeowners may be justifiably concerned over the potential impact on their property values. However, according to Clarke, the situation on the ground is not nearly as dire as popular opinion would have us think.
“There are a lot of myths and misconceptions doing the rounds on the property market at the moment,” he says. “A lot of them are easy to believe because they tie into our biggest fears as property owners, buyers and sellers.”
Instead of falling prey to panic, however, Clarke encourages homeowners to separate fact from fiction – preferably with the help of a property expert – before making any decisions that might backfire in the long run.
'Interest rate hike will not stop people buying houses'
Chris Tyson, founder, and chairperson of national real estate company, Tyson Properties, says the 0.25 basis point interest rate hike announced by the South African Reserve Bank this afternoon was extremely positive and, while it may inject a little caution, it will not frighten buyers out of the market.
“In fact, we see this as extremely positive. It is a sign that interest rates are leveling off to be in line with pre-Covid levels,” says Tyson.
Nick Pearson, CEO of Tyson Properties, said that the sector had already weathered a number of rate increases since November 2021 when the Reserve Bank began to hike interest rates upwards from what many believed to be unrealistic lows during the Covid-19 pandemic, believes that there has been a correction in interest rates over the past year and that this latest increase – which is likely to be one of or even the last in this cycle – will enable both buyers and sellers to readjust to a post-pandemic economy.
“That doesn’t mean that there are going to be less transactions – but an interest rate hike definitely forces people to be more correct when it comes to pricing their properties for sale or making an offer on a property,” he said.
Pearson added that an interest rate hike also forced more homes onto the market, particularly those priced under R3.5 million.
At the same time, it also reduced the number of first time buyers in the market. “The rental market will become more buoyant with more people choosing to rent rather than buy,” he continued. This is in marked contrast to an increase in the number of first-time homeowners when interest rates were low as more people could afford to pay back home loans.
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