SARB rate decision a 'missed opportunity', but first-time buyers can still score

The South African Reserve Bank's (SARB) Monetary Policy Committee (MPC) has again announced that interest rates will remain stable, keeping the repo rate at 3.5% and the prime lending rate at 7% after its first Monetary Policy Council meeting for 2021.

READ: Applying for a bond in 2021 is 'going to get tougher'

Lesetja Kganyago, SARB Governor, says the MPC considers the overall risks to the inflation outlook as balanced in the near and medium-term, as are the risks to domestic economic growth. This is despite a second wave hitting SA sooner than expected, as the country waits for its vaccine rollout.

During the rate cut announcement, Kganyagi acknowledged conditions were continuously changing but believed the MPC has been very aggressive in its monetary policy in the last year in dealing with the Covid-19 Pandemic and the pressure on the South African economy. 

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

Click here to check your bond affordability

Two members were in favour of a 25 basis point rate cut, while three members preferred to hold the current rate. Industry experts weighed in on the decision to hold the rate - saying it has been a missed opportunity to buoy the current property market rebound and that the possible strategy could be to hold the historic rate for longer, as opposed to lowering even further. 

'Good start to the year for homebuyers'

Carl Coetzee, CEO of BetterBond remains optimistic saying "homebuyers will have a further opportunity to apply for a bond in 2021 at this competitive rate".

BetterBond experienced its best December on record, with bond application volumes increasing by 53% year-on-year as buyers can afford up to 30% more than if they had applied for a bond a year ago, according to Coetzee. 

He has seen a marginal improvement in activity across all price brackets - as a result, the time that properties stayed on the market once listed dropped from the almost 11 weeks reported in the first quarter of the year, to just over nine weeks.

Split decision

Samuel Seeff, chairperson of the Seeff Property Group, says the decision is disappointing for the economy and property market overall.

"There is ample reason for a cut given the split decision and missed opportunity in November. Since then, the Rand has strengthened and inflation dipped to 3.1%, the lowest in 16 years. Although expected to rise, analysts believe it will remain below the midpoint of 4.5% providing enough reason for a rate cut. We have seen what last year’s rate cuts did for the economy and property market with better than expected results during the second half of 2020," says Seeff.

"The risk of the Reserve Bank not taking the opportunity to provide a stimulus is that the economic impact on employment and household finances could start eating into the gains made last year. While we have not seen the anticipated levels of distressed sales, the longer the Covid Pandemic lingers, the higher the risk."

'A missed opportunity' 

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa says the house price appreciation and rental escalations have remained subdued for some time now and an interest rate cut could have helped stimulate further growth within the local property market.

The Q4 2020 RE/MAX National Housing Report reveal that, for the fourth consecutive quarter, the median asking price of sectional titles have dropped YoY, shrinking by 3% when compared to Q4 2019.

"The average active listing price on Remax.co.za also dropped by 13% YoY. The only segment the showed growth was the median asking price of freehold properties which grew by 5% YoY.

“It remains unlikely that interest rates will return to their previous levels of around 10% within the near future. I, therefore, encourage buyers to make the most of the current market conditions before things change,” adds Goslett.

'Room for a further repo rate cut'

Dr Andrew Golding, chief executive of the Pam Golding Property group believes that while the MPC erred on the side of caution in holding the repo rates steady, that there is certainly a "compelling case for a further reduction, which would provide some relief to financially distressed households and businesses".

Rather than cutting interest rates further, the Reserve Bank may opt instead to keep rates lower for longer, which would be facilitated by inflation remaining below the mid-point of the Reserve Bank’s 3%-6% inflation target, suggests Golding.

“Encouragingly, the residential property market has since June/July last year (2020) been buoyed by first-time and other homebuyers seeking to capitalise on the record low-interest rates coupled with value-for-money opportunities in the current economic environment – and further boosted by changing dynamics in the marketplace as buyers adjust their lifestyles and residential property preferences to suit the ‘new normal’ resulting from the pandemic. 

“As ooba points out, the volume of applications from first-time buyers in Q4 of 2020 increased by 36% compared to Q4 in 2019, with a 59% increase in value growth, while ooba’s overall home loan applications for Q4 2020 increased by 36% compared to Q4 2019, representing a 56% growth in value. Average house prices rose to R1.36 million in December last year, up 11.7% from year-earlier levels, while the average price for first-time buyers inched up to a record high of R1.104 million. That said, the metric for home loans extended to first-time buyers as a percentage of ooba’s total mortgage extended appears to have peaked, declining to 49.9% in December, from a record high of 56.2% in May.

“Even the top end of the market has shown some positive activity and signs of recovery, albeit dependent on realistic, market-related pricing by serious, motivated sellers. In recent months - including the December festive season – we have successfully concluded sales on the Cape’s Atlantic Seaboard at prices in excess of R30 million and even up to R70 million”.