Property buyers in South Africa are being cautious

 ·19 Mar 2023

South Africa’s residential buyers remain prudent despite the likely eventual easing of interest rates and promises made during the budget speech.

The South African Reserve Bank (SARB) hiked interest rates by 25 basis points in January, taking the repo rate to 7.25% and the prime interest rate to 10.75%. This is part of the SARB’s attempts to fight rising inflation.

Antonie Goosen, Principal and Founder of Meridian Realty, said that “it is the eighth consecutive hike, but it was also a smaller hike than expected – some economists predicted a 50-basis point increase – and most indications point to the fact that the rate-hiking cycle may be coming to an end.”

The SARB will meet again at the end of March, with most economists anticipating another 25bp hike, signalling the peak of the cycle.

However, Goosen said that rental demand remains high as only buyers in the upper segment market can buy a property with the view to rent them out as a form of passive income.

First-time buyers and buyers in the lower to middle segment of the market have felt the impact of the interest rate hikes and are thinking twice before investing in property.

Despite sale volumes slowing, properties bought as investments and for semigration continued to climb.

“Growing stock on the market will provide more choice for potential buyers, and that will mean that sellers will not be able to ask the type of prices they were able to during the property boom that was fuelled by exceptionally low interest rates two years ago,” Goosen said.

However, the Western Cape continues to charge high rates as supply remains low.

“We all know there is still healthy competition between banks, competing on attractive loan terms with credit-worthy, potential buyers.”

“So those who can afford it may be able to get 100% bonds or very favourable terms to make buying that much easier,” he said. 

The residential market is stable overall, but buyers remain cautious and are waiting to see what happens, especially after the February budget. “The actions of the government will speak louder than words,” he said.

There were no major tax proposals in the budget due to a more efficient tax collection from SARS.

A positive for first-time buyers in the property market is the transfer duty bracket has increased by 10%, meaning that there will be no transfer duties on properties worth less than R1.1 million.

The news will help first-time buyers and revive the lower-end section of the market.

In addition, Finance Minister Enoch Godongwana announced that there would be a tax rebate value of 25% (capped at R15,000) of the cost of new and unused solar photovoltaic (PV) panels.

However, Goosen said that the tax rebate would likely only benefit higher-income households, with the initial outlay for solar panels remaining out of reach for most South Africans.

That being said, he did state that homes with solar will have an advantage over other properties on the market.

He added that Treasury proposing a total debt-relief arrangement for Eskom of R254 billion would affect how investors view South Africa and how confident the local market is to invest in property.

The property market will likely remain resilient, despite volumes slowing and buyers being more cautious.

Rentals in entry-level to mid-level properties will likely continue to rise, with wealthy investors capitalising on the boom by buying property as an investment.

The high-end market – especially in the Western Cape – will remain robust with semigration and foreign property investment returning.

Selling in other provinces will depend on marketing and properties having the right price as buyers look for value in their purchases.

Goosen said that the medium outlook for the property market depends on implementing what is outlined in the budget speech, including infrastructure and law enforcement upgrades.

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