Close this search box.

Influence of higher interest rate on real estate industry

MAIN IMAGE: Carl Coetzee, CEO of BetterBond; Dr Andrew Golding, CE of the Pam Golding Property group; Samuel Seeff, chairman of the Seeff Property Group; Rhys Dyer, CEO of ooba Group; Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa; Bruce Bruce Swain, Leapfrog Property CEO

The first interest rate increase the past couple of years will have a varied impact on the real estate industry. The SA Reserve bank last week announced that r the repo rate will increase by 25 basis points.

Carl Coetzee, CEO of BetterBond says the increase interest rate is no cause for alarm.

“After holding steady at 3.5% for more than a year, the nominal increase in the repo rate is not unexpected. The groundwork has already been laid for consolidation of the residential property market and this slight shift to 3.75% should not hamper the rebound which we have seen over the past year.

“After an initial surge last year in first-home buyer activity, we are now seeing renewed interest from buyers at the upper end of the market as they make the most of the low interest rates. Bond applications for homes of more than R3 million have increased by almost 48%, now accounting for just over 6% of all BetterBond’s applications.

“House price inflation is strengthening in most provinces and our application volumes climbed by 16.6% in October year-on-year. The bond registrations increased by 94% for the six months ending September. Also encouraging is that there has been a significant jump in the average approved bond size, with an increase of 14.6% in October year-on-year.

“We know that interest rates have to normalise as our economic activity returns to pre-pandemic levels, and inflation starts to rise. But we understand too that this will be a gradual increase with the prime lending rate sitting comfortably below double digits for a while yet. With a prime lending rate of 7.25%, we can look forward to further positive activity in the housing market in 2022.”

Dr Andrew Golding, CE of the Pam Golding Property group says the repo rate hike is disappointing for home buyers with mortgages.

“Faced with local and global inflationary pressures, a weak domestic economic growth outlook and the potential for a fourth wave of Covid infections, the Monetary Policy Committee’s (MPC)

“Despite potential risks to the upside, South Africa’s inflation rate remains close to the mid-point of the inflation target, and while it is widely acknowledged that interest rates need to start normalising soon, there are concerns that raising interest rates now may hamper our still fragile economic recovery. The decision by the MPC to increase the repo rate is disappointing for first-time home buyers and those with existing mortgages. The prime rate now rises to 7.25%,” Golding said.

According to the Pam Golding Residential Property Index, as demand growth slows relative to supply, national house price inflation has eased from a peak of +5.3% in May to +4.7% in October 2021. The Western Cape is once again bucking the national trend, with house price inflation remaining elevated at +6.6% in recent months, while house price inflation has slowed to 4.2% in both KwaZulu-Natal and Gauteng in October 2021.

However, the high-demand and more affordable sub-R1 million price band continues to register uninterrupted growth in house prices, averaging at +5.5% for the year to date, compared with +5.1% for South Africa nationally and 2.5% for the +R3 million price band – also for the year to date.

Interestingly, the surge in freehold price inflation – due to the demand for more space due to the lockdown and remote working trend – is slowing, with price growth in both housing categories now slowing to +5.3% for freehold and sectional title at +2.7% in October 2021.

In South Africa’s major metro housing markets, Nelson Mandela Bay’s robust house price growth of 7.1% in July 2021 (latest available Lightstone data) continues to lead, outperforming Ekurhuleni, which continues to accelerate – reaching +6.6% in October. Cape Town, which was the last major metro housing market to recover, continues to rebound to 5.0%, while house price inflation in eThekwini (5.4%), Tshwane (4.5%) and Johannesburg (3.8%) continues to stabilise.

Encouragingly, according to ooba, in October almost half (49.1%) of all mortgages extended were to first-time home buyers. After a post-hard lockdown peak of 56.2% in May 2020, the percentage of first-time buyers declined but now appears to be stabilising at around 50%. After a sharp rise following the aggressive rate cuts in early-2020, the average bond size appears to have peaked in August 2021 at R1.3 million overall and at R1.06 million for first-time buyers – although the current size of bonds remains close to these levels.

Positively for mortgage applicants, both the average (trailing effective) and first-time buyer approval rates have risen in recent months – reaching 82.8% and 81.7% respectively in October 2021, while deposits as a percentage of purchase price are again declining, easing to 7.6% on average and 7.4% for first-time buyers in October 2021. The approval rate for 100% bond applications improved sharply in October – rising to 84.1% on average and to 82.9% for first-time buyers. At current levels, approval rates for 100% loans are close to the pre-Covid highs of February 2020.

“While there remain variances in activity and demand across various regions, cities and towns depending on the movement of homeowners and the respective affordability of property and desirability of each location, we experience sustained volumes of sales transactions nationally, underlining ongoing consumer confidence in home ownership,” Golding stated.

Samuel Seeff, chairman of the Seeff Property Group says the hike in the repo rate is a shock to the economy, premature and bad news as the festive season is around the corner.

“The SARB should have waited until next year. We are disappointed at the hawkish stance especially since inflation has remained flat for the second month. I am of the firm view that the SARB should be taking a more aggressive approach to supporting the economy as central banks have done globally,” he says.

While the economy has surprised on the upside, Seeff says the post-pandemic recovery needs more support. Consumers need the reprieve and extra disposable cash as we head into the traditionally busy festive season for the retail sector.

Nonetheless, Seeff says it is still a great year to put property on your Christmas list. The increase in repayments is minimal, and home loans are still more attainable. One can still get out of your rental, buy a bigger house or move to a better neighbourhood as buyers have been doing since mid-2020.

He says the interest rate and positive mortgage lending conditions which are the best since 2007 have been a game changer for the housing market which remains the good news story of the economy, supporting the post-pandemic recovery.

Despite the moderating activity following the buyer frenzy of late last year, the market remains robust with sustained demand in most areas. Seeff says overall transaction volumes have recovered back to the 2019 pre-pandemic level and the market is only about 7% below 2015 to 2018 average.

“This has been the best sales year for Seeff in our 57-year history. We have achieved record prices of up to R55 million and R60 million in Plettenberg Bay, R45 million at the Waterfront (highest since 2012) and have just concluded the highest price by an agency in Camps Bay at R52 million.

“We expect more of the same going into 2022, supported by the interest rate and favourable mortgage lending conditions. Seeff says the expectation is that the rate should remain fairly flat with any increase likely to be fairly benign at least until the end of next year.

“That said, we remain in uncertain times while the pandemic lingers. The resurgence of Eskom blackouts, drastic petrol price hikes, inflation concerns, and premature interest rate hikes could slow economic growth. Naturally, a weak growth environment could negatively impact the housing market.”

It is still one of the best times to buy a house in over a decade. There is a steady flow of good stock onto the market which, unfortunately for sellers, means market-related asking prices are key to a faster sale and higher selling to asking price ratio, especially in the higher price bands, he says.

“Buyers will need to act quickly though, especially in the lower price bands and high-demand areas where there is no shortage of willing buyers looking to capitalise on the favourable market conditions,” Seeff concluded.

Bruce Swain, Leapfrog Property CEO, said the record-low interest rate was never going to be a sustainable, long-term arrangement.

“The decision will certainly have an impact on affordability when it comes to property ownership and will necessitate a more stringent and frugal approach to managing household finances. Having said that, we still encourage first-time buyers to consider entering the market, even if that means making sacrifices in other areas. Property remains a robust, long-term investment and there are always good opportunities worth seeking out.”

Rhys Dyer, CEO of ooba Group, believes that it’s still a good time to be a homeowner and that the increase will have little effect on the sustained demand for home loans.

“An increase in the repo rate has many homeowners doing the math on their monthly home loan repayments. The repayment amount on a R1 million bond will increase by R151 per month (from R7753 up to R7904).

“According to our latest data, the average price of a home in South Africa is around R1.3 million, which means that the majority of the country’s homeowners will only have to budget for an increase of under R200 on their monthly bond repayments. A marginal increase in the repo rate was imminent. It’s important for homeowners to budget accordingly and to plan for every eventuality,” Dyer said.

Looking to the higher end of the home loan spectrum, Dyer says that the repo increase stands to impact this bracket albeit not significantly. “Home loan repayments on a home purchased for R2.5 million will increase by R377 per month (up from R19382 to R19759) while homes purchased for R3 million will increase by R452 per month (up from R23259 to R23711).

This is how the increase influences repayments of bonds:

Bond amount                   7%                         7.25%                   Increase

R1 million                           R7753                   R7904                   R151

R1.25 million                     R9691                   R9980                   R189

R1.5 million                        R11629                R11856                R227

R1.75 million                     R13568                R13832                R264

R2 million                           R15506                R15808                R302

R2.25 million                     R17444                R17783                R339

R2.5 million                        R19832                R19759                R377

R2.75 million                     R21321                R21735                R414

R3 million                           R23259                R23711                R452


Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, remains hopeful that this increase will not have too profound of an effect on the property market.

“However, tough times are ahead for homeowners who have not left room in their budgets for this increase. Despite this our network continues to record record-breaking sales totals across the country ever since interest rates dropped last year.

“Year-to-date September, our reported sales totals are up by 45% while property registrations are up 75%. This hyper-activity is largely owing to the low interest rates as well as a change in lifestyle brought about by the pandemic,” says Goslett.

“My hope is that this interest rate hike will just bring activity back to normal volumes,” he adds. “Now that the economy has been allowed to open further and vaccination rates are increasing, the hope is that we’ll see an end to the rising unemployment rates. The housing market is very closely linked to how well the greater economy is performing, so we remain hopeful that these factors will contribute towards greater economy stability, especially now that interest rates have been raised,” says Goslett.

Share this article:

more top news stories