Tough times continue for homeowners and the property market in South Africa

 ·28 Mar 2024

The Monetary Policy Committee (MPC) has voted to keep interest rates unchanged – and while it was expected and an indication that rates are unlikely to move higher, it still means that indebted South Africans will continue to service their repayments with rates at 15-year highs.

The first interest rate decision for the new year leaves the repo rate at 8.25%, with the prime lending rate at 11.75% – a fifth consecutive hold on rates.

The bank’s decision was unanimous and fell in line with market expectations.

Although acknowledging the easing inflationary environment, SARB remained hawkish, warning that risks to the inflation outlook remain, particularly food inflation and the power crisis.

Although property experts noted that a stable rate decision is a good sign, some believe it was a missed opportunity to boost the economy and property market.

Samuel Seeff, chairman of the Seeff Property Group, noted there has been a notable decline in sales volumes since the middle of last year, and price growth has stalled to just about under 1%, which is not a great incentive for sellers.

Seeff reiterated that the SARB has been too hawkish and that keeping the rate high for so long has hampered the economy and the property market.

Since November 2021, homeowners with fairly modest R2 million bonds have been slammed with increases of more than R6,000 per month.

Rates remain at their highest point in 15 years, as the fallout from the global financial crisis has weighed on the local currency.

Lew Geffen Sotheby’s International Realty CEO Yael Geffen agreed that although the interest rate hold was expected, it was not to the benefit of South Africans.

“Since the Covid-19 pandemic, the economy has shed hundreds of thousands of jobs, and the real-term value of salaries of those who are still lucky enough to be employed has dropped by nearly 7% compared to pre-pandemic household income. This while the interest rate has more than doubled,” she said.

“There is no universe in which that math computes to anything but a disaster for households that are already overburdened by debt.”

Geffen said that with prospects of a rate cut in the first half of the year now all but gone, the broad revitalisation of South Africa’s property market is likely to be delayed.

FNB also highlighted the sobering implications of the MPC’s latest decision.

Property Sector Strategist at FNB Commercial Property Finance, John Loss, noted the ongoing sideways movement in interest rates is expected to keep property values growing at very low single-digit rates, not keeping pace with general inflation, which translates into further correction in “real” (inflation-adjusted) values.

He also added that the new development market is likely to remain in the doldrums.

Harcourts South Africa CEO Richard Gray said the decision to keep rates higher for longer shows the average South African is paying for no faults of their own – an oversight of the governor.

“I feel that the Governor has missed an opportunity to provide desperately needed relief to the average South African homeowner who is not only battling with repaying their mortgage loan debt, but also struggling with the high cost of living, and servicing other short term debt.

“Inflation is not at current levels because people are spending wildly and recklessly. It is higher because of the weak rand, high fuel prices and high food prices.

“The fastest way to provide relief to consumers is to decrease the cost of their debt. Hopefully, the first-rate cut is not far off,” said Gray.

Most property experts agreed buyers are likely to remain cautious, waiting to see what inflation does in the second half of the year – noting if lending rates come down, the market will see a sharp rebound.

The upside in the current market is that it is ticking over as buyers look to take advantage of the lower prices. Sellers, however, should be aware that the slowed growth and weaker demand mean buyers are looking to negotiate.

Realistic pricing is likely to attract buyers while overpricing or testing the market will yield no results. If the price is right and the buyer sees the value, they will pay the price.

Read: How to sell a property fast in South Africa

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