A couple jogs past a for sale sign outside a house in Johannesburg, February 1, 2016. Image, REUTERS, Siphiwe Sibeko.
Debt holders face higher repayments following the latest announcement by the Monetary Policy Committee (MPC).
The repo rate climbs by another 75 basis points to 5.5%, leaving the prime lending rate at 9%.
Unsurprised by this announcement, Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett says that he is interested to see whether this latest cut will affect activity within the local housing market.
“In the first quarter of the year, we already noticed activity subside following the first interest rate hike that was announced in November 2021. However, housing market activity inexplicably bounced back in Q2 and is now even stronger than it was last year,” he explains.
“While I do expect that buyer activity will take a knock following this latest hike, I am also optimistic that demand for real estate will remain strong. Interest rates are still roughly 1% lower than pre-pandemic levels and the housing market was still active when prime was at around 10% pre-Covid,” says Goslett.
Meanwhile, Samuel Seeff, chairman of the Seeff Property Group says while it impacts the cost of mortgages and debt, it is not likely to affect the underlying demand in the market
The reality is that the weaker rand and inflation spike to 7.4% (highest since the 2009 GFC), has accelerated rate increases. We are likely to see more aggressive hikes in September and November with the prime rate back to the pre-pandemic level of 10% by January 2023, if not sooner.
“While the SARB is understandably faced with a difficult task and the rate hike may support the currency, this alone will not turn the tide. The high inflation is not because of higher consumer spending, but external factors such as fuel and food hikes which, with the rate hike, is a double-whammy for consumers who must carry the costs,” Seeff further said.
Dr Andrew Golding, chief executive of the Pam Golding Property group, says, “It is relevant to bear in mind that although interest rates may be rising as the bank normalises monetary policy after the remaining restrictive regulations associated with the pandemic were removed, they still remain below pre-Covid levels (of 10%) and as a consequence are still attractive for homebuyers.”
“More significantly, banks retain their appetite for extending mortgages to homebuyers, which is providing a solid underpinning for the local housing market, even as we move into an era of gradually rising interest rates and increasing pressure on household finances.”
“The banks’ appetite to extend mortgages is reflected in the latest ooba data, which shows that mortgages as a percentage of purchase price have risen to a level of 93% in recent months (six-month moving average), which is the highest level in well over a decade,“ Golding further stated.
“While there may be headwinds facing the housing market - such as rising inflation, increasing interest rates and a sluggish local and global economy - an ongoing positive underpinning for the market is the appetite of financial institutions to extend credit. Not only are they pricing home loans competitively, they are also requiring lower deposits as a percentage of selling prices than we’ve seen in over a decade. And as always there are always high demand areas in various regions, plus the semigration trend continues to coastal and more countrified areas for a variety of reasons, as well as sought-after metros and commercial hubs. We remain optimistic in regard to the ongoing resilience of and confidence in South Africa’s residential property market in 2022,” Golding concluded.
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