The South African Reserve Bank is expected to increase the historically low interest rate at its first meeting for 2022 - this follows a 25 basis points increase in November 2021 - This is the first rate hike in three years due to increased inflation risks and despite a fragile recovery.
The Committee believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored and moderate the future path of interest rates.
For the upcoming meeting, the majority of Finder’s panel of 20 economists, academics, and property specialists (70%) expect the rate will increase by 25bps and just 30% say it will hold. Overall, the sentiment is that interest rates will increase three or four times in 2022 - which will considerably impact the property market and pricing.
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Chief Economist at Efficient Group, Dawie Roodt, thinks the MPC will and should increase the rate given rates are increasing internationally, a sentiment shared by Oxford Economics Africa economist, Jee-A van der Linde.
“...Based on the further rise in US inflation, pick up in wages, and the Fed’s hawkish policy pivot, we forecast the SARB will implement a 25 bps increase in each of the four quarters this year,” said van der Linde.
Chief Economist at IQbusiness, Sifiso Skenjana disagrees and thinks the SARB should take a wait and see approach.
“While inflation in the US has come out at levels last seen in 1982, putting upward pressure on interest rate expectations in the US, the SARB should take a more measured approach and keep interest rates on hold while price path data continues to come in we expect domestic inflation will moderate and a move to increase increase interest rates would strangle and an already struggling South African economy.”
Whether or not a rate increase happens in January the panel is confident that the rate will increase this year. Half the panel thinks the rate will increase four times in 2022, 30% three times, 15% twice and 5% once.
With the panel forecasting a number of rate increases this year, it only expects property prices to experience marginal growth with Cape Town boasting the biggest gains.
Cape Town property prices are expected to increase 3.38% on average, followed by Pretoria (3.17%), Benoni (2.83%) and Port Elizabeth (2.43%).
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CEO at TPN, Michelle Dickens also said increased property expenses will soften price growth.
“Property expenses have increased faster than rental escalation particularly municipal administrative costs driving down income yield; coupled with years of flat capital growth discourages current micro landlords from stay invested. TPN notes that for the first time, in 2021, there was net loss of rental properties in the market. More rental properties sold off than brought into the market.”
CEO of Jawitz Properties, Herschel Jawitz was more bullish. He said that despite slowing demand from first home buyers there will be increased demand in the middle and upper end of the residential market.
“Buyers will continue to enjoy an almost perfect buying market with low interest rates, sluggish property price growth and a positive bank lending environment. While the market will remain a buyers market for now, sellers will see the benefit of realistic pricing and steady demand from buyers,” he said.
Co-Head of Financial Markets at ETM Analytics, Kieran Stephen Siney, said some segments of the market will perform better than others.
READ: Interest rate hikes amid tough economic conditions | Will SA's property market level out in 2022?
“The top end of the property market is expected to perform relatively well despite rising rates and a fragile economy. As rates are raised against the backdrop of tough economic times, we expect the middle to lower tier of the market to come under some pressure.”
Finder’s panel thinks continuing semigration will be the biggest property trend in 2022 (62%), followed by increased demand for coastal properties and increased housing security (38% each) and an increase in home auctions (31%).
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