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No repo rate cut disappoints

MAIN IMAGE: Samuel Seeff, chairman of the Seeff Property Group; Shaun Rademeyer, CEO Multinet; Andrew Golding, chief executive Pam Golding Property group.

Another rate cut would have been better but at least the current low interest rate is still encouraging news for buyers who are looking for a new home with more living space.

Last week the South African Reserve Bank (SARB) announced that the repo rate will be retained at 3.5% (home loan base rate at 7%). A disappointing decision says Samuel Seeff, chairman of the Seeff Property Group, especially while the country finds itself once again in a Level 3 lockdown for the economy and property market.

“While the property market is poised to continue its buoyancy, we now again find ourselves with tighter lockdown restrictions amid a second wave resurgence of the Covid Pandemic. 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, Seeff explains.

Bumper year in 2020 due to low interest rate

Thanks mostly to the SARB’s decision to lower the interest rate last year to 7% – the lowest it has been in decades – the residential property market has been buoyant, especially in the lower to medium price range. According to Shaun Rademeyer, CEO of Multinet Home Loans, for the first time in several years the average property value submissions to the banks have exceeded the double-digit growth percentage during the last 5 months. Since July 2020 the average percentage in submitted property values has exceeded 12% in comparison to the same period in 2019. “The main reasons for the growth,” Rademeyer says, “is attributed to the decline in the interest rate, which has captured the attention of first-time home buyers as well as previous homeowners re-entering the housing market.”

Prior to the interest rate drop, many homeowners had to sell their properties and enter the rental market. With the much favourable interest rate and affordability being a possibility many of these previous homeowners have chosen to rather buy a property versus renting one.

House price submission value

Secondly, with the lockdown fresh in their memory, many homeowners have been looking for homes that have a garden, an extra room and enough ‘me space’ – a trend that Rademeyer predicts will continue as the indications are the trend of remote working will not be changing soon.

According to the latest Pam Golding Residential Property Index, there is a clear recovery in national house prices from a low of 2.36% in April 2019 to a high of 3.14% in December 2020. House price inflation averaged at 2.52% in 2019 and 2.80% in 2020. Dr Andrew Golding, chief executive of Pam Golding Property group, says the rebound in house prices, coupled with still muted consumer inflation, put real house price inflation back in positive territory in December 2020. Lightstone reports that notably, freehold property prices have outperformed relative to sectional title throughout the past year, averaging at 2.9% (FH) versus 2.1% (ST).

The property market begun 2021 with a great buyer’s market, especially in the low to mid-market areas to R1.8 million (R3 million in some areas) and selectively in the upper price bands. Sellers should be able to find interested buyers provided they price correctly says Seeff.

Meanwhile, the struggling economy and severe financial strain felt by thousands of households are a huge concern. “Although the property market is very much active at this time, many buyers and sellers are struggling to make ends meet within the current economy, which puts downward pressure on asking prices,” says Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

On the positive side, amidst all the uncertainty about what this year will bring, economists are saying that there is the possibility of further rate cuts. However, Golding points out the country’s economic activity will remain vulnerable to further waves of infection and lockdown restrictions until the vaccine roll-out gains momentum and South Africa approaches ‘herd immunity’.

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