SARB holds rate steady yet again

Interest rates will yet again remain stable at 3.5% (repo rate), with the prime lending rate remaining at 7% following the latest announcement by the Monetary Policy Committee.

Reserve Bank Governor Kganyago Lesetja, once again warned that the implied policy to manage South Africa's inflation and economic outlook could mean an "increase of 25 basis points is likely in the fourth quarter of 2021".

READ: 62% of credit applications rejected | SA homeowners still under financial pressure

But why no rate cut? 

As we head to the local elections and given the economic destruction of the July riots, the country needs stability and a rapid return to economic growth, says Samuel Seeff, chairman of the Seeff Property Group.

Seeff says, South Africa’s GDP recovery is lagging other G20 countries. Globally, central banks continue their aggressive stance of keeping interest rates low to stimulate economic recovery.

"South Africa has essentially already had three lockdowns with a potential fourth predicted for early December despite the vaccination roll-out. On top of that, after four quarters of positive GDP growth, the economy is expected to again contract in the third quarter as a result of the July riots.

"For as long as the economy is not fully open, we run the risk of higher inflation and rising job losses. There has been no overspending in the economy due to the low interest rate. Rather, we are seeing imported inflation. Even so, the inflation rate remains within the SARB’s target range and the currency remains fairly resilient.

Seeff says SARB should have considered "a 25bps cut to boost sentiment and encourage business to invest into the economy so that we can get onto the growth path so desperately needed".

"As we have seen, the historic rate cuts, which has reduced borrowing costs by about 30%, has had an enormous impact on the residential property market. It is probably one of the few industries which has recovered to pre-pandemic levels, and we need to retain the activity."

READ: SARB Rate Decision | Property buying boom 'expected to last for at least another year'

Future Rate Increases

While grateful for this decision, Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa says, “It is no secret that SARB governor Lesetja Kganyago hopes for the inflation target to be lowered to 3% over time and at every MPC meeting thus far, up-coming interest rate hikes have been mentioned. I would caution homeowners and new buyers to take these warnings seriously and make sure there is provision within their budgets to allow for an increase of at least 25 basis points at any point in time.

"As things stand, keeping interest rates stable will go a long way towards helping debt holders keep up with repayments within an already struggling economy.

Western Cape Price acceleration

While the market recovery seen in 2020 has tapered somewhat, Dr Andrew Golding, chief executive of the Pam Golding Property group says the ongoing record-low interest rate will continue to bolster the property market.

“From a housing perspective, the prevailing low interest rates have undoubtedly bolstered market confidence, coupled with favourable lending conditions seeing both average (trailing effective) and first-time buyer approval rates rising further in August (2021), increasing to 82.6% and 81.2% respectively, according to ooba.

“Moreover, after increasing in Q4 2020 and Q1 2021, deposits as a percentage of purchase price are again declining, with average and first-time home buyer deposit rates converging at around 7% in August, while the overall approval rate for 100% home loans rose marginally in the same month to 82.8%.

“According to the Pam Golding Residential Property Index, while national house price inflation continues to lose momentum as economic growth slows in Q3 2021, easing from a peak of 5.2% in May to 5% in August, the sub-R1 million price band continues to enjoy uninterrupted growth, averaging at 5.8% for the year to date (to August 2021).”

 “Bucking the national trend, the Western Cape is the only major regional market in which house price inflation continues to accelerate, with house price inflation averaging 5.8% during the year to date, compared to 4.7% in both Gauteng and KwaZulu-Natal.

“In addition, according to Lightstone, the coastal price premium versus non-coastal homes continues to widen, reaching 2.9% in May 2021 (latest data) and averaging at 2.2% for the year to date, compared to just 0.2% in 2020.

“According to ooba, the average price of homes sold rebounded in August, rising to R1.4 million overall and R1.13 million for first-time buyers – the latter approaching January 2021’s record high.

“Notably, at R113 billion, the total value of residential property transfers in South Africa during the first half (H1) of 2021 was 35.4% above H1 2019, while units were 12.3% higher at approximately 114 000 (Lightstone data). This robust improvement from pre-Covid levels of activity underlines the ongoing resilience of the country’s housing market, underpinned by consistent demand for correctly priced homes across all price bands, particularly the sub-R5 million category - but also including luxury residences,” says Dr Golding.  

 Buyers’ market continues, average deposit requirement down almost 9%,

Seeff says with new stock coming into the market it remains one of the best times to buy property in decades.

“Mortgage lending conditions remain favourable, and the average deposit requirement is now down to around 8.75%, almost unheard of since 2007.

“Given the flat price growth, buyers are able to still buy at well below what the price might have been in a booming economy. The cheaper borrowing costs enables buyers to either save on their home loan or afford a bigger home loan. First-time buyers can still find 100% home loans and often with costs on top of that.

“While the market has come off the highs of the second half of 2020, Seeff hopes it will pick up over the summer months which is traditionally busier for certain markets. That said, he cautions that we continue to operate in uncertain times, and we will need to keep monitoring the market. “ 

More savings ahead for homeowners 

But increased buyer activity remains good for the housing market and good for the overall economy, according to Carl Coetzee, CEO of BetterBond who says the stable repo rate continues to give first-home buyers an opportunity to gain a foothold on the property ladder.

"An estimated 60% of BetterBond’s applications for the 12 months ending August 2021 were for first-home buyers.  

“BetterBond’s average interest rate concession is minus 0.61%, which, at the current prime lending rate of 7%, brings the interest rate down to 6.39%. This means a monthly saving of just over R700 on a R2 million bond with a 20-year repayment period.”

He adds that homeowners can look forward to more savings on their monthly bond payments. The monthly saving on a R1 million bond, since the prime lending rate dropped from 10% to the current 7%, is almost R2 000. Over a 20-year period, the interest saving is just over R455 000.

Source: BetterBond

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