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The repo rate roundup

MAIN IMAGE: Regional Director and CEO of RE/MAX of Southern Africa – Adrian Goslett, CEO of ooba Group – Rhys Dyer, CEO of BetterBond – Carl Coetzee, Property Sector Strategist at FNB Commercial Property Finance – John Loos.

Here’s a quick roundup of comments from the industry in response to the third consecutive repo rate hike of 75 basis points announced on Thursday. While tis certainly the season for belt-tightening, property remains a good investment.

Regional Director and CEO of RE/MAX of Southern Africa – Adrian Goslett

“The effects of these interest rate hikes only become evident a few months after consumers adjust to paying the higher debt instalments; but we have already started seeing the signs that property market activity is shifting. Over the last two months, our digital marketing agency has noted a rise in rental related search terms and a decline in buying search terms, which points to a coming shift in the local housing market,” he notes.

He advises real estate agents to start preparing themselves for leaner times. “Since COVID, we have had an abundance of buyers. This is likely to change now, so real estate professionals will need to build out their networks as much as they can before conditions change,” he recommends.

However, Goslett also highlights that interest rates are roughly back to where they were before COVID and are not yet at abnormally high levels. “While interest rates are still manageable at this point in time, I recommend that all homeowners make sure to put themselves in a position to be able to afford the higher repayments on the home loan as well as other debts they might hold. Many economists predict that our GDP is likely to shrink in 2023, which could put further pressure on individuals. Reducing debt now will make any future interest rate hikes more bearable,” Goslett concludes.

CEO of ooba Group – Rhys Dyer

“While this interest rate hike will have a dampening effect on the residential property market and places further strain on consumers, the silver lining is that it appears that progress is being made in containing inflation both locally and globally,” comments. “It also narrows the chances of significant rate increases taking place in 2023.”

“Important to remember is that 2020 and 2021 saw some of the lowest interest rates recorded in decades. The long-term historical interest rate in South Africa averaged 11.98% over the past 25 years and we are still well below this.”

Is it still a good time to invest in property?

Looking to the impact that this has on the residential property sector, Dyer shares that several factors indicate that it’s still a good time to invest in property:

  1. The revised interest rate is still one of the best experienced over the past 25-years.
  2. High interest rates slow new demand for property which results in lower property prices, meaning that it’s still a buyer’s market.
  3. Banks continue to compete for home loan business by approving home loans on attractive terms.
  4. Property prices remain affordable across many parts of the country.

Adding to this, the current environment is good news for property investors looking at buy-to-rent options. “Investors are able to cash-in on the demand from a new wave of tenants – those who have chosen not to buy because they’re sensitive to interest rate fluctuations,” Dyer explains. ooba’s stats show that the national rebound in demand for investment / buy-to-rent properties continues – rising to +8.1% (3 month moving average) of total applications in October 2022.

“Homebuyers are still able to take advantage of the positive lending environment and ease their affordability concerns by shopping around for their home loan. Our research shows that homebuyers who only obtain a single home loan quote will repay their home loan at an interest rate that is on average 1.03% (103 basis points) higher than those who obtained multiple quotes.  This puts money back into the pocket of consumers,” he concludes.

CEO of BetterBond – Carl Coetzee

While the decision to increase the repo rate shortly before the festive season is not what consumers wanted to hear, we must acknowledge that the Reserve Bank is doing what it can to control inflation, so that we can look forward to lower interest rates again towards the end of next year. This increase, while an uncomfortable one, should help to bring inflation closer to the midline target and once inflation starts dropping, so too will the interest rate.

In the meantime, we urge consumers to budget prudently and encourage aspirant home buyers to factor rates increases into their calculations when applying for a bond. Affordability is always important when buying a home, irrespective of whether rates are going up or not. Although we expect house prices to soften over the next months as the interest rate stabilises, property remains a sound investment option, especially during these challenging economic times.

Property Sector Strategist at FNB Commercial Property Finance – John Loos

“Residential rental market expected to strengthen further: We expect credit-dependent home buying t slow in the near term as a result of ongoing interest rate hiking, with a portion of aspirant home buyers waiting it out in the residential rental market. This is expected to lead to further decline in residential rental vacancy rates, and a mild near-term rental inflation acceleration”.

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