5 events that could impact the value of your house in 2017
Market analysts in the property sector have welcomed a decision by the Monetary Policy Committee of the South African Reserve Bank to keep its policy Repo Rate unchanged at 7%, where it has been since March 2016.
This will leave Prime Lending Rates at 10.5%, a decision that was widely anticipated.
“Our FNB forecast is for the Repo Rate to remain unchanged through the entire 2017,” said household and property sector strategist, John Loos.
He noted that the decision comes despite a recent food price inflation surge sustaining Consumer Price Index (CPI) inflation at levels above the 6% upper target limits of the SARB, at 6.8% year-on-year In December.
However, the alleviation of drought conditions appears set to lower food price inflation, and Loos expects this to gradually pull CPI inflation back into the 3-6% target range this year.
The SARB forecasts 6.2% CPI inflation average for 2017, returning to 3-6% target range in the final quarter of the year.
According to Loos, the current interest rate levels appear sufficient to keep all exuberance out of the household and consumer credit markets.
He said that, while low consumer confidence doesn’t necessitate any further rate hiking at present in order to curb credit growth, the the mild rate hiking phase from 2014 to early-2016, followed by the lengthy period of unchanged rates, has not caused undue financial stress in the household sector.
With regard to the housing market, the strategist said that the level of rates is well above the recent percentage for house price inflation, limiting the potential for any unhealthy speculating activity in the housing market.
“But on the other hand, the onset of sideways movement in rates since March 2016, we believe, will limit the potential for decline average house prices, something undesirable for mortgage lenders and mortgage borrowers alike,” he said.
The most recent FNB House Price Index for December inflated by a mere 1.6% year-on-year, “but we believe that unchanged rates through 2017 will contribute to ongoing low positive average house price growth in 2017,” he said.
A good start to the year
Samuel Seeff, chairman of the Seeff Property Group, also welcomed the Reserve Bank’s decision, saying that “with so much political and economic uncertainty and pressure on the property market, this is indeed good news to kick off the year.”
Seeff said that the overall property market is increasingly feeling the pinch of the poor economic fundamentals “and just too much negative political noise” which is undermining business and consumer confidence.
He noted that while the currency has stabilised, the December inflation rate climbed to 6.8%, up from 6.6% in November as it continues its stubborn breach of the 6% upper target range.
This, said Seeff, is concerning for interest rate stability, the economy and further downward pressure on the property market.
“Retail has not had a great festive season, new vehicle sales are under pressure and there is some noise around more job losses on the cards. That said, we are encouraged by some economists who are expecting an improvement in the economy this year,” the property expert said.
Five things to watch out for in 2017
Seeff highlighted several developments to watch in the year ahead which may influence the property sector, including:
- How the ‘Trump era’ will affect South Africa’s economy;
- The performance of emerging markets especially the Chinese economy, now South Africa’s biggest trade partner;
- Commodity prices and demand along with the drought and recent devastating fires in the Western Cape are all concerns that weigh on the economy and property market;
- The lead up to the ANC’s elective conference in December is likely to impact;
- And the Budget speech for 2017 will also add costs.
“Despite some rather negative data from the property economists, we continue seeing a reasonably resilient market, obviously slower, especially in the economically affected areas such as the northern region mining towns, countryside and some coastal belts, but on the whole, it remains business as usual,” Seeff said.
Although stock levels have increased and price growth has slowed, the group has not seen prices drop nor any major creep in bond defaulters; the movements have been manageable on the whole, he added.
“This is no doubt going to be a year of further consolidation for the property market,” Seeff said, noting that the Budget 2017 is likely to bring additional cost rises.
Read: How long it takes to sell your home in South Africa’s 5 major metros
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