MAIN IMAGE: Joff van Reenen, Founding Partner High Street Auctions; John Loos, Property Sector Strategist at FNB Commercial Property Finance; Carl Coetzee, CEO of BetterBond; Samuel Seeff, Chairman of the Seeff Property Group
Staff Writer
There is a very real danger that the series of recent rates hikes, while coming off a very low base, will slow impetus across the property sector.
This is the view of Joff van Reenen, Founding Partner and lead auctioneer in view of the repo rate increase of 50 basis points by the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) announced late last week. Although not unexpected, it’s certainly not welcome.
“It’s a lot for consumers to absorb on top of a 30% year-on-year increase in fuel prices, food prices going through the roof and electricity costs going up as power outages continue to batter production.
“Average South Africans aren’t seeing wage increases to keep pace with these rising prices, so people are going to accumulate more debt. It’s a vicious cycle.”
According to Van Reenen real estate is one of South Africa’s most robust industries, stimulating the economy and generating billions for the fiscus.
He said as much as the Reserve Bank needs to protect the currency, it also needs to look after industries that drive the economy and look after its citizens. Food and shelter are among them, and it’s not the government’s place to deprive people of those rights with crushing economic pressure.
John Loos, Property Sector Strategist at FNB Commercial Property Finance, said the significant 50 basis point hike, leads us to expect that we may see renewed slowdown in sales activity in the commercial property sector in the second half of 2022, while recent declines in vacancy rates may stall on the back of a stalling in demand growth for new commercial space.
“We also expect this ongoing rate hiking to keep average commercial property capital value growth at low single digits, translating into negative growth in real (inflation-adjusted) terms. We expect the pace of new residential development activity to also slow in lagged response to interest rate hiking already implemented, and with further hiking anticipated.”
“While the increase will have an impact on monthly bond repayments, and how much aspirant buyers will be able to afford, it is worth noting that prime lending rate is still considerably lower than it was two years ago before the pandemic. This rate increase does serve as a reminder that affordability should always be a consideration when buying a home. Homeowners should factor future rate hikes into the calculations of what they can afford to pay on a bond each month,” says Carl Coetzee, CEO of BetterBond.
“We were hoping for a more moderate points hike, but the 50-point increase wasn’t entirely unexpected,” says Tony Clarke, Managing Director of the Rawson Property Group. “Between the weaker rand, rising international interest rates and massive fuel price hikes on the horizon – which will likely push inflation over the SARB’s 6% upper limit – there was little else the MPC could reasonably do.”
While Clarke says there is always hope for a reversal of the upwards trend, the effect of the current increases on the property industry will be noticeable but not catastrophic.
“Buyers will be extremely demanding and cost-conscious and not afraid to push their luck during negotiations. Sellers will need to take this into account when positioning their properties, leaning on the skills of property professionals to compete effectively,“ Clarke says.
There was a good case for hiking repo rate by only 25bps, instead of 50bps, says Dr Andrew Golding, Pam Golding Properties CEO.
“Locally, the primary concern for the MPC is the impact that the resurgent inflation rate is having on inflation expectations. Prior to the war in Ukraine, the Reserve Bank had managed to anchor inflation expectations around the mid-point of the inflation target – which provided to aggressively cut interest rates in the early stages of lockdown, providing a buffer for economic activity during the pandemic. Now, however, there are signs that elevated inflation is impacting inflation expectations, resulting in above inflation wage demands in both the public and private sector.
“In the wake of the Fed’s recent 50bps interest rate hike and the rapid normalisation of monetary policy globally, together with rising oil prices and renewed weakness in the Rand, it seemed inevitable that this would be the fourth consecutive MPC meeting at which an interest rate hike would be announced. South Africa needs to normalise interest rates in line with the Fed, to avoid further Rand weakness at a time of soaring global food and energy prices.
“Nevertheless, we had hoped that any increase would be only 25bps, not the 50bps. The impact on South Africa’s residential housing market is not expected to be significant, as this is still the lowest level of prime interest rate in more than two decades.
“Bearing in mind that the desire among our country’s sizeable young, aspirational citizens is to own their own homes, and that activity in the marketplace is also fuelled by people relocating for a variety of lifestyle and other reasons, we are optimistic that the residential property market will continue to retain its resilience, as evidenced over the years despite numerous economic and other challenges.”
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that this decision was predictable and in line with other statements provided by the MPC.
“The truth is that there are so many unknown variables around interest rate fluctuations that it is impossible to tell with absolute certainty whether fixing your interest rate now will be more beneficial for you in the long run. My advice to real estate practitioners currently is to remind buyers that prime was at 10% pre-COVID, which means that interest rates are still at record lows despite these interest rate hikes,” he advises.
Great time to buy
“We should now be aware that we are in a hiking cycle as SARB looks to normalise the rate and there are a further 100bps expected this year. Challenges for the economy include the CPI which, although unchanged, remains at the upper target range while the Rand has come under pressure. The low GDP growth outlook could potentially be further impacted by the electricity crisis, fuel and food price hikes, supply constraints and fall-out from the Russia war in Ukraine,” says Samuel Seeff, chairman of the Seeff Property Group.
Seeff says the residential market continues to hold up well with buyers showing strong confidence. Although homeowners and property buyers need to adjust to higher home loan repayments, the reality is that the interest rate should remain below the pre-pandemic level. Beyond the further 100bps, he does not anticipate any further impact on the interest rate.
It is still a great time for buyers, but also for sellers to take advantage of the conditions, he adds. The low interest rate is a strong support for the market combined with the positive bank lending which is at the best level since the introduction of the National Credit Act in 2007.
Seeff says the market remains well-balanced in terms of sufficient supply to meet buyer demand with some exceptions in the high demand price bands and areas. At the same time, house price growth has slowed to around 4% on average.
