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Is the boom over as interest rate hikes again?

MAIN IMAGE: Samuel Seeff, Chairman of the Seeff Property Group; Tony Clarke, MD of the Rawson Property Group; Dr Andrew Golding, Chief Executive of the Pam Golding Property Group; John Jack, CEO of Galetti Corporate Real Estate

Staff Writer

Homeowners and consumers are in for more belt-tightening as the interest rate rises for the sixth successive time with the Reserve Bank hiking the repo rate by another 75 bps to 6.25% per annum.

This now effectively takes the interest rate back to almost the pre-pandemic level. Samuel Seeff, Chairman of the Seeff Property Group, says while the hike was largely expected, stability is now vital for the economy and market.

“We would have liked to have seen only a 50bps hike, but the 75bps hike is not a surprise, 100bps hike is an overkill and too high under the present conditions. The Bank now also needs to signal when the hiking cycle will come to an end and when we can expect rates to start coming down again.”

Seeff says stability must return to the economy and property market. The economy needs a kickstart and a favourable interest rate is vital for this. Interest rates need to be kept as low as possible for as long as possible.

In terms of the impact of the hiking cycle on the property market, Seeff says they are beginning to see a two-paced market emerge. While demand is still high on the one side, buyer hesitancy is increasing with deals taking much longer on the other side. According to Seeff property practitioners will need to ensure that they continue sticking to the basics.

“There is no need to be concerned as the market is not expecting any dramatic impact in terms of the demand for property. What we are seeing though, is that deals are taking longer as buyers are holding back, but those who are ready to buy continue doing so.

“We are seeing that there is still a strong desire among buyers to purchase property, but stability is vital for the economy and property market and the Reserve Bank should do what it can to facilitate that in terms of the interest rate outlook,” he said.

Tony Clarke, Managing Director of the Rawson Property Group, said realistically the SARB is now caught between a rock and hard place.

“They know full well the financial pressure that consumers are under, and how raising interest rates will affect them in the short term, but they also know how much worse things could get if inflation is left to spiral out of control.

“Raising interest rates is a tried and tested method of controlling outsized inflation. However, it often makes life harder before circumstances improve. Homeowners will start feeling the pinch as their bond repayments continue to climb, right alongside the rest of their everyday expenses. For some, there are going to be difficult decisions ahead. Most households have very few luxuries left to cut back, and this rapid climb will doubtless push some homeowners past the point of no return if their finances are not in order.”

Dr Andrew Golding, Chief Executive of the Pam Golding Property Group, said the increased repo rate is disappointing for aspirant homeowners requiring credit and existing homeowners with mortgages, all of whom are already having to contend with the economic impact of severe load shedding, high fuel, and rising food costs, and increasing electricity and other municipal tariffs.

“Despite the rising trend in interest rates since late-2021, activity in the housing market has remained remarkably resilient thus far – with recent data from Lightstone showing that while unit sales during the first half of 2022 were marginally below those recorded during the same period last year, the value of those sales was higher.”

He pointed out that on the plus side, particularly for first-time home buyers, SA’s financial institutions appear to be maintaining their appetite for extending mortgages, despite requiring slightly larger deposits as a percentage of the purchase price

“While the rising interest rate environment and the pressure on household disposable income are headwinds for the housing market, the fact that banks retain their appetite to extend mortgages provides the market with a solid underpinning. We should bear in mind that it is anticipated that we are nearing the end of the repo rate upward cycle, and that over decades, residential property has retained its appeal as a sound medium to long term investment,” Golding concluded.

According to John Jack, CEO of Galetti Corporate Real Estate, the interest rate hike will affect all sectors around the country, but one that will be most affected is undoubtedly commercial real estate, which has fought hard to regain momentum in recent years.

“This will have a compounding effect on landlords, many of whom are still battling high vacancy rates. As interest rates rise, so do repayments,” he comments. “Commercial buildings are typically quite highly geared in private portfolios which doesn’t leave much room for hiking especially in the face of higher vacancies post-Covid-19,” he said.

Jack said that depending on the structure of the business, an opportunity exists for the landlord to restructure their debt profile. This allows them to become more ‘tax efficient’ and to stabilise the funding of their portfolio.

He concludes by saying that it’s important to consider all the financing options on offer and to be advised accordingly. “Quite often, clients will approach their bank and settle for the best offer on the table. However, we strongly advise that you work through an advisor to raise debt at the most competitive rate on the market.”

According to Seeff the market remains relatively well balanced, and it is still a good time to sell, and  provided sellers are in the right area and price range, they should be able to attract a buyer and a good price.

Seeff says the price boom is now largely over. Price growth continues its steady decline and sellers are cautioned against holding back for higher prices. Buyers must now adjust to the higher interest rate, but Seeff says the upside is that there is now more room to negotiate more aggressively.

The deteriorating buying conditions will likely push more people into the rental market. Given that there are stock shortages in certain areas, Seeff says further that we could start seeing rental rates rise which will be good for the rental market which has been largely flat over the last two years.

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