The South African Reserve Bank's Monetary Policy Committee raised the interest rates by 50 basis points at their last meeting to the dismay of many South Africans and might be poised to deliver yet another interest rate hike at the upcoming meeting this week.
READ: 3 ways to navigate interest rate hikes and keep your home
Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, says the Reserve Bank will be hard pressed not to raise the repo rate this week.
“Given the dire prediction of reaching Stage 8 load-shedding over winter, the Russian arms scandal and talk of possible US and EU sanctions if the allegation proves to be true, the South African economy is in a precarious position.
“This points to Thursday delivering a rate increase of at least 25 basis points.”
Geffen says this will put further strain on the property sector.
“My advice to prospective buyers is to seek bond pre-approval, so that you know what you can afford. Also buy conservatively to allow for another possible rate hike before the end of the year.
“With so much uncertainty, property is one of the safest investments anyone can make for long-term financial security.”
'Major developments'
Greg Dart, Director at specialist property auctioneers High Street Auctions, says the Finance Minister all but spelled out that another repo rate hike was coming during his budget vote speech last week.
“Enoch Godongwana said ‘major developments’ since the budget in February had significantly and adversely affected South Africa and our public finances. It’s not a good sign when the Finance Minister says we’re in a ‘dire economic situation’.
“That coupled with impending Stage 8 load-shedding and the enormous fallout we can expect if the Russian arms supply allegations prove to be true, could push us to the tipping point.
“US and EU sanctions are possible, the currency will suffer even more, and trade and supply chain disruptions pose a massive threat to our economic stability.”
Dart says while this will put the property sector under enormous pressure, it will not be anything close to a death knell.
“It simply means that investors must look for opportunities that earn money for them in the short- and long-term. Property is one of the safest investments you can make, but to grow wealth it’s up to investors to seek out properties that will deliver returns while their bricks and mortar investments grows in value over time.
“If there ever was a time to work smart, 2023 is it.”
READ: Forecasting the next 5-10 years in the property market: Unveiling opportunities and challenges
Interest rates might still climb further
"Most had hoped that the previous interest rate hike would be the last we would see for a while. Sadly, the market seems to be indicating that another interest rate hike might be on the horizon," says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
Interest rates are currently at the highest they have been since 2009, but things are still not as bad as they were at the peak of the market crash in 2008 when interest rates were as high as 15.5%.
"While I do not foresee interest rates climbing to the same levels we saw in 2008, I do encourage consumers to prepare themselves for the possibility of further interest rate hikes in the near future," says Goslett.
READ: 17 key global real estate trends and how best to leverage them
As things stands, homeowners might already be facing affordability issues. "The worst thing a homeowner can do in this situation is nothing. If budgets are feeling too stretched, it is better to act sooner rather than later. Avoid having your credit score forever tarnished by missing repayments or by making partial repayments. It will take a long time to restore your credit score and to catch up on the debts if you start falling behind. Instead, be upfront about your situation and try to arrange solutions before things gets out of hand," Goslett suggests.
For those who are considering downscaling, Goslett explains that the market is still active enough for homeowners to achieve their full asking price – provided that the home is marketed at fair market value. "Ultimately, rising interest rates affect both sides of property transactions. Rising interest rates impacts on the purchasing power of the buyer, so it is not as easy to finance a home and afford the repayments.
"This lessens the pool of buyers – at least those who require home finance. Because the pool of buyers become smaller, homes don’t sell as quickly. Sellers who do not adjust their pricing tend to have their home’s value appear overinflated considering the outside market conditions. The sellers who are first to adjust their pricing to reflect the current realty will have the advantage of having their homes sold quickly," he advises.
READ: Small living, Big savings | Why downscaling your home might relieve some financial pressure
"Revising the selling price is not necessarily a time-based thing,” he adds. “The correct way to approach this is to get the correct value at the start. If you need to make an adjustment, then you do – but you don’t do so based on how much time has passed. You do so based on the market conditions around you."
Want a clear picture of what you can and can't afford? Try Property24's list of affordability calculators and tools here.
Leaning on the advice of reliable professionals will become crucial for those who want to sell at full value in a tightening market. “If you are struggling, arrange a free consultation with your local RE/MAX agent. They can offer some insights into how your local market is performing and might be able to assist you towards finding a solution that is best suited for your current financial position,” says Goslett.
Aggressive interest rate hikes weaken embattled property market
This week’s expected interest rate hike, coupled with worsening loadshedding, is yet another blow for South Africa’s embattled commercial property sector.
Norman Raad, CEO at Broll Auctions and Sales, said while the auction house has seen some of its best-ever attended auctions this year, the negative sentiment around the economy and government’s inability to stabilise matters, will impact the already hard-hit commercial real estate sector.
Economists anticipate that the Reserve Bank’s Monetary Policy Committee will raise interest rates by 25 basis points, increasing the interest and repo rates to 8% and 11.5% respectively.
“Landlords in particular are having a rough time – rising interest rates need to be balanced with reasonable rental increases to tenants, many of whom could also be navigating a difficult road which includes having to share the costs of alternative power solutions such as fuel for generators.
“Yet despite challenges, there are several green shoots in some sectors of the market – we had multiple cash offers on properties at last month’s auction, proving that there are still buyers even when the market is down. We are hopeful that government will find measures to improve the situation to see the property market boom," says Raad.
There is light at the end of the tunnel
Rory Anderson, Local Real Estate, Ballito, says the prime lending rate is currently at 11.25% and it looks likely that we will receive another small interest rate hike soon. However, it sounds like the interest rates will then stabilise for most of the rest of the year.
"I do believe that the interest rate hikes have hurt the market sentiment this year but currently most of my clients seem more positive as they all believe that there is light at the end of the tunnel. The lovely autumn/winter season is always good weather on the North Coast and clients are currently still viewing and purchasin," he says.
Gail Becker, Property Finance Specialist at Multinet Homeloans, says: “The market (yield curve) has priced in 50bps. We are hoping for 25 but it is best to assume the market is correct. As originators we have our role to play in managing our buyers (and sellers) expectations when buying property. Buying a home is a long-term decision and has both emotional and financial factors at play. We know that interest rates fluctuate throughout the term of a 20-30 year loan so securing the best interest rate upfront is important to manage finances as best as possible”.
Stephanie Badenhorst and Jevan De Villiers, Local Real Estate, Ballito, says: “Regardless of Interest rate hikes people are still seeing the value in buying as they all know that at some stage the interest rate will come down again. Yes, there is always an initial shock and retraction when an interest rate hike is upon us but after a month or two people adjust and see the value in their purchase. We know it is always a long-term vision with cycles and we believe the interest rate will come down by the end of 2023 or the beginning of 2024".
The market will pick up and the wheels will keep on turning
Cameron Leith, Local Real Estate, Nottingham Road, says: "Through keeping in touch with many of my fellow Property Practitioners and colleagues I am of the opinion that the property sales market in the greater Midlands area seems to have slowed down. I feel that this is based not solely on Interest rate, but rather a combination of the interest rate plus other factors. There is so much going on with load shedding, interest rates and the global economies that everyone seems hesitant to make any decisions. However, with all this being said I am very confident that the market will pick up and the wheels will keep on turning. As South Africans we are extremely resilient and will adapt and make a plan in any environment we find ourselves".
Jayshree Ramsewak, Local Real Estate, Ballito who comes from a conveyancing property background, noticed first-hand the reduction in the number of bond instructions from the various lending institutions with each interest rate hike.
"As a property owner with an existing bond, I have also personally felt the effect of the 8 interest rate hikes that have gone from 7.50 % to an astronomical 11.25 % in the period from 18/01/2022 to 30/3/2023! "As a property practitioner, I've noticed that ongoing fuel increases; electricity and water increases etc and 8 interest rate hikes have slowed down the property market as buyers affordability has definitely been reduced. Sellers are also feeling the pinch and this is one of the reasons that they are looking to sell.
"However, to try and stabilise a crippling economy which is going to be placed under further strain during the winter months with load shedding leaping to possibly stage 8, I believe that a further interest rate hike is definitely on the cards".
Richard Anderson, Local Real Estate, Ballito, says in the lower end of the market where buyers are purchasing properties in the R 1.1 million to R 2.2 million bracket, they are currently being awarded 100% bonds by the banks. However, the ongoing and pending interest rate hikes are causing these Buyers to hold off on purchasing as they are concerned about future increases and future affordability.
"We are seeing that the higher end purchaser is not as adversely affected and they often counter a hike by putting down larger deposits. Additionally an interest rate hike may affect sellers due to buyer affordability, but it also opens a window for cash buyers who then feel they can make “cheeky offers”, which is not desirable for sellers".
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