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The rising repo effect on property

The rising repo effect on property

MAIN IMAGE: Dr. Andrew Golding, chief executive of the Pam Golding Property group, Samuel Seeff, chairman of the Seeff Property Group, Co-founder of Sentinel Homes, Renier Kriek, and John Loos, Property Sector Strategist at FNB Commercial Property Finance

Staff Writer

The Monetary Policy Committee of the SA Reserve Bank has elected to hike the repo rate for the 10th time in 18 months by another 50bps, taking the repo rate up to 8.25%, and the base home loan rate to 11.75%.

Why the increase?

“At the time, the higher-than-anticipated 50bps rate hike at the previous (March 2023) MPC meeting was widely thought to be the last – or at worst the penultimate – repo rate hike in the current interest rate cycle. Not only had interest rates risen beyond their pre-Covid highs of 10.25% but severe load-shedding was causing a rapid deterioration in the local economic outlook.

Unfortunately, the upside risks to the inflation outlook that the Reserve Bank highlighted at last month’s MPC materialised, compelling the Bank to hike rates by a further 50bps at the May meeting. With several local factors continuing to pose further upside risks to the inflation outlook, there is now less certainty that rates are now finally at a peak”, explains Dr. Andrew Golding, chief executive of the Pam Golding Property group.

What does the rate increase look like for property owners in practical terms? 

As a result, monthly bond repayments over a 20-year term will increase by approximately:

  • R750 000 bond – extra R259 from R7 869 to R8 128
  • R900 000 bond – extra R310 from R9 443 to R9 753
  • R1 000 000 bond – extra R344 from R10 493 to R10 837
  • R1 500 000 bond – extra R517 from R15 739 to R16 256
  • R2 000 000 bond – extra R689 from R20 985 to R21 674
  • R2 500 000 bond – extra R862 from R26 231 to R27 093

Samuel Seeff, chairman of the Seeff Property Group, believes the rapidly rising borrowing cost has put a dampener on the market. First-time homebuyers, many from the emerging middle class, are facing affordability challenges, and overall sales volumes have declined, more in some areas and to a lesser degree in other markets such as the Cape.

“That said, the rate is still below the average of 15% to 16%. It is also encouraging for the market that we are still seeing the best lending conditions since 2007 with strong support from the banks. Approval rates are still at over 80%, deposit requirements still at around 8%-10%, and buyers can often find a rate concession”, says Seeff.

Metros remain attractive, and semigration is on the rise

Co-founder of Sentinel Homes, Renier Kriek shares that “Demand from buyers has decreased significantly in the past 12 months especially, and this has led to properties spending more time on the market before being sold. Many sellers choose not to sell because of perceived adverse market conditions, while some are forced to sell because of evaporating affordability. This situation influences prices and price growth negatively. Higher market rates impact affordability, which leads consumers to hunt for value. This may mean buying cheaper properties in central areas or moving to outlying areas where value for money is generally better”.

Recent Pam Golding Properties research seems to confirm this trend, finding that even as overall housing activity slowed, sales in major metro areas have remained buoyant, as young adults continue to be attracted to key business nodes to start careers and ultimately purchase homes.

While employment prospects ensure the enduring appeal of housing markets in all major metro nodes, lifestyle considerations continue to encourage relocation by those who can, to destinations, including smaller towns, where the way of life is more appealing and house prices are more affordable.

Golding shares that “The appeal of sustainable municipalities is clear in the surge in investment/buy-to-rent demand in the Western Cape, indicating that even if homebuyers are not able to move immediately, there is a groundswell of those who wish to participate in the Western Cape housing market to retire or relocate there when possible – or at least to benefit economically from the still buoyant Western Cape housing market”.

What about the rental market?

John Loos, Property Sector Strategist at FNB Commercial Property Finance, believes that “The earlier interest rate hiking gave some mild support to the rental market, as aspirant buyers postponed their home buying and remained in the rental market for longer. But given the increasingly severe magnitude of interest rate hiking since late-2021, we believe that the rental market’s earlier recovery may stall, with the tenant population beginning to experience increased financial pressure in a significantly weaker economic environment”.

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