The South African property market not only survived but thrived during the pandemic and has proven to be a sound investment option, especially during challenging times.
READ: The benefits of investing in property for your financial future
This is according to CEO of Betterbond, Carl Coetzee, who reminds homeowners to know what they can afford and to do what they can to minimize interest rate increases.
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He says as consumers prepare for another repo rate hike this month, it’s important to note that even if it climbs by 50 basis points to take the prime lending rate to 8.75%, this is still well below the 10% it was before the pandemic.
“There are still opportunities for aspirant buyers and investors, notwithstanding the challenging prevailing economic conditions,” he says.
SEE: 5 affordable homes under R1m that make great starter homes
Coetzee says there is no denying that times are tough with the ongoing Ukraine conflict having an impact on oil and fuel prices and electricity prices have soared.
"The South African Reserve Bank Governor Lesetja Kganyago has gone on record to say that a hike of 25 or 50 basis points is 'not off the table' and economists at BNP Paribas have cautioned that we could even see a 75 basis point hike, which would take the prime lending rate to 9%," he notes.
“Affordability is always a consideration when buying a home, especially in the face of rising interest rates, but the prime lending rate will still be in the single digits and does not allow homeowners an opportunity to invest in property as a long-term investment".
READ: First-time buyers - how you can get your foot on the property ladder
BetterBond has seen an almost 7% increase in the ratio of formally granted bonds for June year-on-year, which is significant coming off the high base set last year, says Coetzee.
“While the honeymoon period for first-time buyers seen in June 2021, shortly after the lifting of lockdown restrictions as the interest rate dropped to a record low, has moderated, BetterBond has seen a marked increase in bond applications for homes of R3 million and more.”
Application volumes in this price band have risen by 31,76% year-on-year for June, suggesting that repeat buyers are still benefiting from the single-digit interest rate. Similarly, bond applications for homes of between R2.5 million and R3 million have increased by almost 19% for the same period.
SEE: What R2m to R3m gets you in SA’s trendiest suburbs
Below is an indication of how a 25 and 50 basis point repo rate hike will change your monthly bond repayments:
|
Bond amount |
Current bond payment with prime at 8.25% | Monthly bond payment If repo goes up 0.25% and prime is at 8.5% |
Monthly bond payment if repo goes up 0.5% and prime is at 8.75 |
| R1m | R8,521 | R8,678 | R8,837 |
| R1.5m | R12,781 | R13,017 | R13,256 |
| R2m | R17,041 | R17,356 | R17,674 |
| R3m | R25,562 | R26,035 | R26,511 |
| R4m | R34,083 |
R34,713 |
R35,348 |
“Semigration numbers are also up, with buyers relocating to be closer to family or to return to where they work as their employment conditions change,” says Coetzee.
READ: Despite expected 1% interest hike, it is still a great time to become a homeowner
He adds that house price growth has slowed since early 2021 and national house price inflation is currently at 4.46%, according to Lightstone, creating opportunities for buyers to invest in property while the prime lending rate is below 10%.
“This buyer activity is reflected in the year-on-year increase in BetterBond’s Deeds Office bond registrations for April, adding that irrespective of the outcome of this month’s Monetary Policy Committee meeting, the message is clear: consumers need to look at their monthly expenses and what they can afford as interest rates start to climb,” says Coetzee.
He says those who have the financial means to do so are advised to pay extra into their bond, if they can, to reduce the amount of interest payable over the whole loan period.
“Create a savings buffer so that you have the financial reserves to manage rising prices, fuel, food, and bond repayments if necessary. Look at your household budget and cut costs to reduce monthly expenses. And if you are considering buying a new home, work with a bond originator who can apply to more than one bank on your behalf to negotiate a rate concession that will offset repo rate increases,” he says.
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