SARB holds rate steady, as 'KZN leads property market recovery'

The South African Reserve Bank's (SARB) Monetary Policy Committee (MPC)  has decided to hold the repo rate at 3.5% and the prime lending rate at 7% after its second Monetary Policy Council meeting for 2021.

Lesetja Kganyago, SARB Governor says the "overall risks to the inflation outlook appear to be balanced", with the MPC making a "unanimous decision" to keep the repo rate as is.  

"South Africa’s economy expanded by 6.3% on a quarterly, annualised basis in the fourth quarter of 2020, and contracted by 7% for the year as a whole. The Bank’s forecast for GDP for the first quarter of 2021 stands at -0.2%, down from 1.0% at the time of the January MPC meeting. With stronger quarterly outcomes for the rest of this year, the economy is expected to grow by about 3.8% (up from 3.6%). 

Kganyago acknowledged recovery to pre-pandemic levels would take time, outlining the "rising cost of fuels, ongoing constraints to the domestic supply of energy and uncertainty about vaccine rollout continue to pose downside risks". Read the full statement here.

The result came as no surprise to industry experts though. While a drop in the interest rate would have helped South Africans struggling to make ends meet, the historically low-interest rate continues to favour first-time buyers looking to enter the property market.  

READ: What South Africans are spending more money on than they were a year ago?

Dr Andrew Golding, chief executive of the Pam Golding Property group says, “Economists in the main argued that interest rates are currently at the correct level given the prevailing economic environment. From a residential property perspective, last year’s aggressive rate cuts have fuelled home buying to a large degree, with 2020 surprising many by showing robust home-buying activity. In fact, according to FNB, 2020 registered the highest volume of mortgage approvals in South Africa in more than a decade."

"It is a reminder that if you are thinking of buying a home, now would be a good time to secure an attractive interest rate," says Golding.

READ: SARB to hold rate but hike around the corner - expert panel

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa cautions that "the MPC has warned of two potential increases of 25 basis points in the second and fourth quarters of 2021, but this is all dependent on how the economy performs and many economists predict that an increase is not likely to be necessary".

"However unlikely it may or may not be, homeowners should just bear this in mind when budgeting for the year ahead,” he advises.

The Reserve Bank has completely missed the mark according to Samuel Seeff, chairperson of the Seeff Property Group.

"The country and economy desperately need a stimulus."  

READ: Why are South Africans selling their homes right now?

"All that can, must be done from a domestic perspective to stimulate the economy and contain business and job losses. There was opportunity for a rate cut during the last two Monetary Policy Committee meetings as evident from the split decisions, especially in January when inflation fell to a 16-year low. Inflation has declined further in February to 2.9%, well below the bank’s target, providing ample motivation for a rate cut," says Seeff.  

The following table shows the savings in interest since SARB began cutting interest rates in January 2020:

Click here to check your bond affordability

"Even if the petrol price increase fuels (pun intended!) higher inflation, this would be imported inflation and not as a result of South Africans spending wildly and irresponsibly. In fact far from it. Even in the property market where we have seen the biggest impact of the rate cuts, sales activity still falls short of what we could expect from such a low-interest rate," says Seeff. 

Golding however says South Africa can ill afford to continue cutting already historically low-interest rates at a time when investors are anticipating that global interest rates may soon be rising.

'House prices actually increased, despite forecasts of 15% slump'

"One thing we do know is that in unusually uncertain times such as these, forecasting is far from an exact science.

"In fact, despite the uncertainties surrounding the pandemic, the market for residential property has so far proven to be one of the country’s more resilient sectors, experiencing an earlier than expected rebound with momentum continuing in 2021. Combined with generally more realistic pricing, a ripple effect is still filtering through the market, placing upward pressure on demand through the various price bands.

READ: 2% SA property price growth forecast | What you can expect to pay in these 10 cities

“While some analysts warned that the pandemic and lockdown regulation could cause property prices to slump by up to 15% last year, house prices actually rose by an average 3.05% in 2020, according to Lightstone. The Pam Golding Residential Property Index registered an average increase of 3.2%. This was in line with the consumer inflation rate (which averaged 3.3% in 2020) and actually exceeded the average increase in national house prices of 2.7% (PGP Index) recorded in 2019.

'KwaZulu-Natal still leading the market recovery'

“Currently, and according to the Pam Golding Residential Property Index, South Africa’s house price inflation continues to rebound, rising from a low of 2.5% in April 2019 to 4.1% in February 2021 and promisingly, the recovery in prices is showing no sign of losing momentum. KwaZulu-Natal still leads the recovery with +5.4% in February 2021, followed by Gauteng (+4.8%) and the Western Cape (+4.7%).

Noteworthy especially for first-time buyers, and according to the Pam Golding Residential Property Index, lower-end prices (<R1 million) have been on an upward trend since mid-2020, reaching 6.8% from year-earlier levels in February 2021.

“Interestingly, while growth in freehold prices outperformed relative to sectional title units last year – perhaps influenced by the desire by many to relocate to more spacious properties as a result of the lockdown restrictions, the gap is now rapidly narrowing as growth in sectional title prices accelerates.”

'Remains a tale of two markets'

Seeff adds, "We should potentially have seen much higher levels of activity given that the interest rate is down by about 30% from just over a year ago and it remains a “tale of two markets”, first-time buyers versus high-end buyers. It is essentially only the R750,000 to R3 million price sectors driving the activity that we continue seeing in the market.
 
"High-end buyers continue reflecting the decline in confidence which has been evident since 2017. They are simply not prepared to invest more into the property market until they see GDP growth and demonstrable action on corruption and the State-Owned Enterprises. When they do buy, they are spending much less on real estate, possibly choosing to shift the remainder into offshore assets.
 
"Although the interest rate has been great for property, a cut would provide an added boost. The market is currently achieving around 18,000 to 20,000 monthly transactions, reflecting that only about 3% of economically active individuals are buying property. This leaves room for growth in sales volumes, transfer duty for government and the multiplying knock-on benefits for the economy.

'Market to be driven largely by salary-earners' 

Looking ahead, Seeff says the outlook for property remains positive and the market will remain active, driven largely by salary-earners taking advantage of the interest rate. To date, we have seen a steady stream of sellers and may start seeing some stock shortages soon, but for now the market remains well balanced. 

Goslett however remains optimistic that a possible sellers market could be on the horizon.

"Activity within the property market has been at an all-time high following the series of interest rate cuts that occurred last year. Our reported sales figures YTD February reflect a 33% growth on last year and our registered sales are up by 50%. Our partner, BetterBond, has also seen their home loan business grow in value by 46% over this period, underlining how low interest rates have made owning your dream home a reality for many more South Africans.

"If activity continues at this rate, it won’t be long before we shift into a seller’s market where buyers will have to out-bid each other to secure the home. Before this shift occurs, I would recommend that buyers act fast and make the most of the current market conditions,” says Goslett. 

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