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Unchanged repo rate expected – hike likely early in 2022

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

Danie Keet

The SA Reserve Bank’s (SARB) Monetary Committee (MPC) decided to keep the repo rate unchanged at 3.5% at its meeting yesterday (Thursday) with the prime rate remaining at 7%. Reserve Bank Governor Lesetja Kganyago said the committee’s decision was unanimous. Local interest rates were cut by three percentage points last year. Expectations in the market is that rates would be hiked by the start of next year.

According to Kganyago downside risks to the economy included the longer-than-expected lockdown, limited energy supply, policy uncertainty, and slow vaccine rollout – with the latter having been exacerbated by the impact of the recent riots and looting.

The economic damage caused by the violent unrest in KwaZulu-Natal and Gauteng of the past few weeks, along with a return to more stringent lockdown measures and the rampant third Covid-19 wave in Gauteng, inflation that spiked to above 5% – a 30-month high and stronger-than-expected economic growth in the first quarter, created some expectations that interest rates may head higher sooner than expected.

After the announcement, the Rand was trading slightly weaker at R14.60/$.

According to Shaun Rademeyer, CEO of MultiNET Home Loans, the decision to keep the repo rate at its current value, was expected.

“The SARB has kept the repo rate unchanged at 7% to assist the consumer. Although inflation is on the rise, we suspect that they will try to keep the interest rate as low as possible until an economic recovery is seen. Potential home buyers should take full advantage of this low interest rate before we see a rise in interest rates in the next year or so.”

Samuel Seeff, chairman of the Seeff Property Group, also said the decision was good news.

“That said, we believe a rate cut would have been more appropriate. There is ample reason for the SARB to have stepped in to provide further relief and stimulus, especially given recent events in KZN and Gauteng which will further delay economic recovery.

“We simply cannot continue seeing this passivity while the economy remains undermined. The damage caused by the looting further exacerbates the challenges which prevail until the economy is fully opened and functional across all spheres.

“Aside from boosting economic activity and providing debt relief, the interest rate has been the main driver of the positive activity in the property market over the last year which has sustained despite the onset of a second, and now third wave of infections,” he said.

While there are reports that activity has tapered down in the second quarter, Seeff says it is likely cyclical due to winter and people restricting their movements in view of the third wave rather than an indication that the market has reached a point of equilibrium.

He highlights that while property transactions remain above pre-pandemic levels, the current monthly average of around 20,000 is still about 25% below what would constitute normal market conditions when compared to the last twenty-odd years and about 50% below the 2005-2007 boom period.

“Our branches continue reporting sustained activity. This is borne out by bank reports that mortgage granting continues at an accelerated pace and deposit requirements are the lowest since the introduction of the National Credit Act. The increase in higher value bonds further reflects that sellers are buying up. Conditions continue to largely favour buyers. Stock levels remain adequate and although well-priced property can sell within 8-10 weeks, most sellers still need to cut their price expectations.

In reaction to the repo rate announcement, Dr Andrew Golding, chief executive of the Pam Golding Property group, said given the vulnerability of South Africa’s economy in the wake of last week’s unrest the MPC adopted an accommodative approach by deciding to keep the repo rate steady at 3.5%.

“However, a reduction in the repo rate would have provided some relief to individuals and businesses impacted not only by the effects of the lockdown and recent events, but also the increases in fuel and electricity costs and other utility tariffs.

“Against a backdrop of a weaker rand and upside risks to inflation, it is widely anticipated that the next move in interest rates will be a hike. While some analysts believe interest rates will begin to rise later this year, the consensus view is that the current economic headwinds will delay the first hike until early-2022.

“The resilience of South Africa’s residential property market continues to be illustrated in Gauteng, where activity remains robust. Undoubtedly, the Covid-19 third wave created an increasingly challenging trading environment, further exacerbated by the past week’s events, however, the market continues to respond well, especially to properties that are correctly priced – a trend evident across suburbs as well as in estates,” he said.

According to the latest Pam Golding Residential Property Index, national house price inflation accelerated to 5.2% in June. At +6.2%, the Western Cape is again the regional leader among the major provinces, followed by Gauteng at +5% and KwaZulu-Natal at +4.7%.

Golding added: “According to ooba, the lending environment also improved in June, with higher approval rates and lower average deposits, while the average concession below prime declined to -­0.16%, which is the lowest registered since mid-2010. We have also seen evidence of two separate phases of demand for home loans during the pandemic – initially in the second half of 2020 from first-time home buyers – motivated by the low interest rates, and then later, in the first half of 2021, from older, repeat buyers responding to lifestyle changes amidst the ongoing pandemic and lockdown.”

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