The interest rate is too high. It is stymieing economic growth and driving unemployment and higher debt levels, and it is now enough, says Samuel Seeff, chairman of the Seeff Property Group.
While we are aware that Reserve Bank Governor, Mr Lesetja Kganyago has signalled that a further 25-basis points hike may be necessary to curb inflation, we urge the Bank to consider holding off and keeping the repo rate unchanged at 8.25%.
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Seeff says the burden on consumers, homeowners and buyers is simply too high. On top of electricity and other hikes, they have already had to absorb 475bps in rate hikes and are being “punished” when current inflation is not due to domestic spending, but is largely imported.
Inflation has in any event been coming down and hit an unexpected 13-month low of 6.3% in May 2023 while the Rand-Dollar rate appears to have stabilised. In reality, the higher interest rates have done more harm than good.
He says the high rates have exacerbated the weak economy which needs a kickstart. The SARB should now start looking at bringing the rate down. Economists such as Professor Chris Malikane from Wits also recently spoke against another rate hike stating that SA’s important economic block, the middle class, is facing too much pressure.
Seeff says property sales volumes are down as the market reflects the interest rate hikes. Even the Cape market, which has been strong, is seeing a decline in sales volumes as fewer buyers are now active. The burden is now simply too high for consumers and home buyers.
The market is becoming challenging for sellers and first-time buyers. Overall, Seeff says we are undoubtedly in a buyer’s market. Sellers now need to price accurately as buyers are able to dictate prices.
For buyers, this could be one of the best times to buy. Seeff says it feels similar a bit like the period before the 1994-elections and the 2008-Global Financial Crisis. Those who had bought in 1993 or 2006/7 with the perceived risk at the time, subsequently benefited greatly from good capital growth which followed.
The interest rate will come down again. Prices are flat and the banks are still lending, albeit that buyers will have to budget for the higher rate right now. He says staking your claim in the property market right now could very well stand you in good stead.
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Dr. Andrew Golding, chief executive of the Pam Golding Property group recently shared with Property24 that there are three different measures of inflation that have provided positive news on the inflation front in recent days – the PMI purchasing price index, and producer and consumer inflation. After surprising on the upside for two consecutive months (February and March), consumer inflation has now surprised with a better-than-expected reading for two consecutive months (April and May) and is currently marginally above the upper limit of the Reserve Bank’s inflation target at 6.3%.
Read more here to find out what other experts in the field have to say
"With global food and energy prices subsiding and the rand having regained some of its earlier losses – allowing for petrol price cuts last month (June) and this month (July) – coupled with a high base last year, the current easing trend in inflation is likely to continue during the remainder of the year.
"Based on these factors alone, the Bank may well be tempted to halt interest rate hikes – which has seen the prime rate rise from 10.25% in late 2019 (before Covid) to a low of 7% for more than a year – at the current level of 11.75%. This at a time of extremely weak economic growth.
"However, the Bank will be cautious in the face of a still-hawkish Fed, which has signalled that it is still likely to hike rates later this year. The Reserve Bank will also undoubtedly be concerned about future bouts of rand weakness and any increase in the severity of loadshedding, which would increase costs for businesses. Finally, it is thought likely that the Bank will look closely at inflation expectations (due this week) to see if the business sector, unions and analysts continue to anticipate higher prices – requiring further rate hikes to dampen price pressures," says Dr. Golding.
Analysts are currently fairly evenly split between those forecasting one final 25bps rate hike and those who believe that interest rates have reached a peak in the current cycle. It is an unusually close call and it will be best to monitor developments between now and the MPC meeting to see which way the bank is likely to move.
In the event that the Bank does hike rates, this really is likely to be the final hike of the current cycle.
Based on the Property24 calculator:
R1m bond - 11.75% prime, monthly instalments are R10 837
-12% prime, monthly instalments are R11 010
- an increase of R173 a month
R2m bond - 11.75% prime, monthly instalments are R21 674
-12% prime, monthly instalments are R22 021
- an increase of R347 a month
A 25bps hike on its own does not increase bond repayments significantly, but considering the fact that rates have risen from 7% to 11,75% or 12% - the impact is more pronounced.
Market:
Recent Pam Golding Properties research showed that even as overall housing activity has slowed, sales in major metro areas have remained buoyant, as young adults continue to be attracted to key business nodes to start careers and ultimately purchase homes.
While employment prospects ensure the enduring appeal of housing markets in all major metro nodes, lifestyle considerations continue to encourage relocation by those who are able to, to destinations, including smaller towns, where the way of life is more appealing and house prices are more affordable.
The appeal of sustainable municipalities is clear in the surge in investment/buy-to-rent demand in the Western Cape, indicating that even if homebuyers are not able to move immediately, there is a groundswell of those who wish to participate in the Western Cape housing market with a view to retire or relocate there when possible – or at least to benefit economically from this still buoyant housing market.
At the top-end luxury sector of the residential property market, and despite the current constrained economic trading conditions, there are several niche markets in prime nodes which continue to attract affluent buyers from around the country. These include Tshwane, Johannesburg – such as Sandhurst and Hyde Park, Steyn City in Fourways, Durban – including Morningside, Westville, uMhlanga and Brighton Beach, and Ballito/Zimbali, as well as the Western Cape – including the Garden Route. Furthermore, the top-end of the Cape market has shown itself to be resilient and insulated to some degree from the rest of the market with international buyer demand in this segment featuring prominently.
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