What to expect from South Africa’s property market after the latest rate hike

 ·3 Apr 2023

The latest rate hike by the South African Reserve Bank (SARB) created a stir among property experts, but the market is expected to remain stable for now – as long as sellers price realistically.

On Thursday (30 March), the SARB decided to hike interest rates by 50 basis points, which went against the market’s 25 basis point hike forecast.

“Economic and financial conditions are expected to remain more volatile for the foreseeable future. In this uncertain environment, monetary policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook,” said Reserve Bank governor Lesetja Kganyago.

Despite the valid reasons for the hawkish hike and property experts noting that they are mindful that the SARB faced a difficult decision, many believe it was a bit steep – especially considering the current pressures on consumers in 2023.

According to Professor Andre Roux – an economist at Stellenbosch Business School – the domestic inflation rate remains firmly above the target range of 3% to 6%, and the SARB has a constitutional mandate to protect the value of the currency. 

However, given that South Africa is on the verge of a technical recession, along with double-digit food inflation, inordinately high levels of unemployment, high personal debt burdens, and persistent load-shedding, some leniency is easy to justify, he added. 

Several property experts agree with this sentiment, with some noting that the hike will put pressure on homeowners, especially small businesses.

“The private sector is not blind to the fact that the Reserve Bank has a duty of care to keep a cap on inflation, but perhaps it needs a plan B because the current plan clearly isn’t working,” said the director of High Street Auctions Greg Dart.

“The basic cost of living is out of control for most South Africans. Food price inflation is at a 14-year high, load shedding is now shedding more jobs than kilowatt hours as manufacturing down-times grow ever longer, and we’ll see far greater numbers of small businesses closing doors in the next quarter,” he added.

The Reserve Bank has to give us some slack, said the CEO of Lew Geffen Sotheby’s International Realty, Yael Geffen.

She said that homeowners are not getting salary increases that can accommodate the hikes in monthly bond repayments, which could lead to many having to sell their homes. 

“No salary increases can accommodate the R5,500’s worth of monthly mortgage repayment hikes we’ve experienced in the last 18 months, which is the case for every household in the country currently servicing a R2 million bond,” Geffen said. 

“The situation is untenable, and people are going to lose their homes and livelihoods,” she added. 

Property market outlook still stable

Despite the experts’ concerns, the outlook for the property market is stable for now, as long as sellers price property realistically.

Even after the surprising rate hike, the experts said the conditions still lean toward a buyer’s market.

According to the CEO of Jawitz Properties, Herschel Jawitz, property prices are expected to increase this year by only 2,75% to 3,5%, which means that in real terms, after inflation, property prices are declining by a similar amount.

“As long as inflation remains high amid low economic growth, real property price growth will remain marginal, and for buyers who have the means to buy, the current market is offering good value buying opportunities,” he said.

The Chairman of Seeff Property Group, Samuel Seeff, agreed: “the rate is still below the historical average of the last 20-30 years, and we are still seeing a strong, stable property market.”

“The impact of the higher interest rate is also somewhat mitigated by the continued favourable bank lending climate, which is still the best in over a decade. The increased transfer duty exemption threshold to R1.1 million is another positive for cash-strapped buyers,” he added.

However, although the market is leaning in favour of the buyer, the price will be the determining factor, and Geffen advises sellers to be realistic about pricing in the current market.

“The buyers are out there, but they’re less inclined to take risks in uncertain times. They’re looking for solid investments that’ll deliver in the long term, and sellers who offer that will close the deals,” she said. 

Read: How much more you’ll pay on your monthly bond in South Africa after the latest interest rate hike

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