The escalating interest rate is impeding economic growth, amplifying unemployment and debt levels, and it’s now reached an unbearable point,” asserts Samuel Seeff, the chair of the Seeff Property Group. Despite Reserve Bank Governor, Mr Lesetja Kganyago hinting at a possible 25-basis point increase to manage inflation, Seeff insists that the bank should contemplate maintaining the repo rate at the current 8.25%.
Seeff argues that the economic strain on consumers, homeowners, and buyers has hit an all-time high. With escalating electricity costs and other hikes, plus a 475bps increase in rates, consumers are being ‘penalized’ when the current inflation isn’t primarily driven by domestic spending, but rather mostly imported.
However, inflation has been on a steady decline and even reached an unexpected 13-month low of 6.3% in May 2023 while the Rand-Dollar rate seems to have stabilized. The higher interest rates, in fact, have had a counterproductive effect.
Seeff asserts that the inflated rates have exacerbated the fragile economy which desperately needs a boost. Now is the time for the SARB to consider reducing the rate. Economists like Professor Chris Malikane from Wits have also recently expressed their opposition to another rate hike, stating that the middle class, a significant economic group in SA, is under too much stress.
According to Seeff, property sales volumes have plummeted as the market adjusts to the interest rate hikes. Even in the robust Cape market, there’s a decline in sales volumes as fewer buyers are now active. The financial strain has become unmanageable for consumers and home buyers.
Selling is becoming more challenging, particularly for first-time buyers. Seeff maintains that we are unmistakably in a buyer’s market now. Sellers must price accurately as the balance of power has shifted to the buyers.
This could be an opportune time for buyers. The current climate bears resemblance to periods preceding the 1994 elections and the 2008 Global Financial Crisis. Those who purchased during these risky times in 1993 or 2006/7 benefited immensely from the significant capital growth that followed.
Interest rates will inevitably decline again. Property prices are currently stagnant and the banks continue to lend, although buyers will need to budget for the higher rate currently. Staking your claim in the property market now could put you in a strong position in the future, states Seeff.
READ: Is Your House Overly Large? Four-Step Guide to Downsizing for a More Sustainable Future
Dr. Andrew Golding, the CEO of the Pam Golding Property Group recently disclosed to Property24 that there’s been positive news on the inflation front with three different measures of inflation – the PMI purchasing price index, and producer and consumer inflation.
“With international food and energy prices on the decline and the rand recuperating some of its previous losses – enabling fuel price reductions in June and July – combined with a high base last year, the current easing trend in inflation is predicted to continue for the rest of the year.
Taking into account these factors alone, the Bank might be inclined to put a hold on interest rate hikes – which has seen the prime rate rise from 10.25% in late 2019 (pre-Covid) to a low of 7% for over a year – at the current level of 11.75%. This at a time of extremely feeble economic growth.
The Bank, however, will proceed with caution given the still-aggressive stance of the Fed, which has indicated that it is likely to increase rates later this year. The Reserve Bank will also certainly be worried about future episodes of rand weakness and any intensification in the severity of load shedding, which would increase costs for businesses.
In conclusion, it’s predicted that the Bank will scrutinize inflation expectations (due this week) to see if the business sector, unions, and analysts continue to anticipate higher prices – requiring further rate hikes to suppress price pressures,” says Dr. Golding.
Currently, the forecasts from analysts are evenly split between those predicting one final 25bps rate hike and those who believe that interest rates have peaked in the current cycle. It’s an unusually close call and it will be best to monitor developments between now and the MPC meeting to see which way the bank is likely to move.
In the case that the Bank decides to increase rates, this is likely to be the final hike of the current cycle.
For a bond worth R1m at an 11.75% prime, monthly installments are R10 837; at 12% prime, they are R11 010—an increase of R173 a month.
For a R2m bond at an 11.75% prime, monthly installments are R21 674; at 12% prime, they are R22 021—an increase of R347 a month.
A 25bps hike on its own does not significantly affect bond repayments, but considering the fact that rates have risen from 7% to 11,75% or 12% – the impact is more noticeable.
Recent research by Pam Golding Properties showed that even as overall housing activity has slowed, sales in major metro areas have remained buoyant, as young adults continue to be attracted to key business nodes to start careers and ultimately purchase homes.
While employment prospects ensure the enduring appeal of housing markets in all major metro nodes, lifestyle considerations continue to encourage relocation by those who are able to, to destinations, including smaller towns, where the way of life is more appealing and house prices are more affordable.
The appeal of sustainable municipalities is clear in the surge in investment/buy-to-rent demand in the Western Cape, indicating that even if homebuyers are not able to move immediately, there is a groundswell of those who wish to participate in the Western Cape housing market with a view to retire or relocate there when possible – or at least to benefit economically from this still buoyant housing market.
At the top-end luxury sector of the residential property market, and despite the current constrained economic trading conditions, there are several niche markets in prime nodes which continue to attract affluent buyers from around the country. These include Tshwane, Johannesburg – such as Sandhurst and Hyde Park, Steyn City in Fourways, Durban – including Morningside, Westville, uMhlanga and Brighton Beach, and Ballito/Zimbali, as well as the Western Cape – including the Garden Route. Furthermore, the top-end of the Cape market has shown itself to be resilient and insulated to some degree from the rest of the market with international buyer demand in this segment featuring prominently.
