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The repo rate remains stable; what does it mean for property?

The repo rate remains stable; what does it mean for property?

MAIN IMAGE: Dr Andrew Golding, chief executive of the Pam Golding Property group, BetterBond Interim CEO and Head of Sales, Bradd Bendall, Rhys Dyer CEO of ooba Group, Samuel Seeff, chairman of Seeff Property Group, Tony Clarke, MD of the Rawson Property Group.

Editor

The property industry breathed a small sigh of relief when the Monetary Policy Committee (MPC) left the repo rate unchanged at 8.25% for the fourth consecutive meeting. This comes on the back of headline inflation easing to 5.1% in December 2023, down from 5.5% in November and a high of 7.1% in March 2023.

The common consensus is that the MPC will likely start lowering the repo rate around the middle of the year, with Dr Andrew Golding, chief executive of the Pam Golding Property group, sharing that “SA is unlikely to start reducing the repo rate until the Fed makes the first move. Initial optimism that the Fed could start cutting interest rates in March has faded, with the first reduction expected in the second quarter – or later. However, according to market analysts, it appears likely that the Reserve Bank will cut by a total of 75 basis points during the second half of the year, with further cuts possible in 2025”.

What does all this mean for the real estate market? Industry leaders share the state of the property market, the implications for first-time buyers, look at how this impacts new mortgages, and which areas are still growing despite the economic pressures.

The state of the property market

According to the RE/MAX National Housing Report Q4 2023, the ramifications of high interest rates are still being felt in the fourth quarter of 2023, with fewer transactions occurring and leaving room for only marginal house price appreciation.   

According to Lightstone Property data, as of 10 January 2024, the number of transfers (both bonded and unbonded) recorded at the Deeds Office from October to December 2023 amounted to 47,630*. When reviewed against the figures from previous RE/MAX National Housing Reports, this amount is down by 17% YoY. When compared against the stats from Q3, the total number of transactions is down by 2%.

BetterBond Interim CEO and Head of Sales, Bradd Bendall, believes “There are some green shoots of positivity for our industry as we look ahead to 2024: Economists and banking partners are projecting stabilising and possibly lower interest rates from the mid-point of the year; we can anticipate moderately better economic growth; and, employment gains are expected to continue. These factors could positively impact our industry by leading to increased demand for property and, consequently, stronger property prices in the second half of the year. Risk factors include the impact of elections (both locally and internationally as multiple countries go to the polls this year), increased geopolitical tensions, and adverse weather patterns.”

First-time buyers

The latest statistics released by Ooba Home Loans (Q4 ‘23) reveal that the average purchase price in both the repeat and first-time homebuyer categories continued to stagnate, with a quarter-on-quarter change of -0.9% and 0.1%, respectively. “This is a symptom of a cooling in the property market and a clear indicator of the financial pressure that consumers are under,” explains Rhys Dyer CEO of ooba Group. 

Dyer continues, “First-time buyers comprised 48% of our application volumes in Q4 ‘23, unchanged from the previous quarter. While this is a large percentage of all applications, it is still a significant decrease from May 2020, the start of the last rate reduction cycle, where they made up 56%. Should my prediction of multiple rate cuts soon come to pass, we anticipate this market segment will once again make up more than 52% of bonded property transactions in the last quarter of 2024.”

Samuel Seeff, chairman of Seeff Property Group, believes that “The higher rate has been especially impactful on first-time home buyers and the lower price bands while an increasing number of homeowners are now looking to sell for financial reasons”.

“First-time buyers are particularly interest-rate-sensitive, which is a big part of why we saw such a drop-off in first-time purchases over the last year,” says Tony Clarke, MD of the Rawson Property Group. “Now that rates are stabilising, we expect to see a lot of those first-timers, who were hesitant before, making the jump to take advantage of the excellent value currently available on the property market.”

Bank lending appetites

“Mortgage lending remains positive with deposit requirements still below 10% while qualifying buyers can secure a rate concession as the banks compete for the limited pool of mortgage business”, shares Seeff.

Dyer points out that throughout the recently extended interest rate hiking cycle, the country’s major banks have taken steps to ease some of the increased pressure on homebuyers in the form of high approval rates, significant interest rate discounts to prime and granting zero-deposit bonds.

“While bank approval rates have dropped to 81.6% in the most recent quarter (-2.8% year-on-year), we expect lending conditions to be favourable to homebuyers for the remainder of 2024. This lending climate and interest rate cuts will go a long way in restoring consumer confidence in homebuying,” says Dyer.

Where are properties selling?

Dyer predicts that “investment buying in the Western Cape will continue its upward trajectory, with more than 30% of ooba’s home loan applications for 2024 expected to come from buy-to-let properties in this region.

According to the RE/MAX report, the Western Cape claimed four of the top 5 most searched suburbs on remax.co.za during Q4 2023:

  1. Parklands, Western Cape
  2. Rondebosch, Western Cape
  3. Claremont, Western Cape
  4. Sea Point, Western Cape
  5. Faerie Glen, Gauteng

This trend is also reflected in the provincial house price inflation stats published by Lightstone Property in the Residential Property Indices as of the end of October. Property inflation was 6.18% for the Western Cape, while Gauteng was just 0.54% and KZN was 1.62%.

Golding’s data confirms a strong preference for the Western Cape, noting that Cape Town continued to outperform relative to other major metro housing markets during the period from January to September 2023 (latest data), with house price growth of 3.46%, followed by Nelson Mandela Bay at 1.51%, Tshwane 1.41%, Ekurhuleni 1.37%, eThekwini 1.05% and Johannesburg -0.68%.

Positively, according to FNB’s Estate Agent Survey Q4 2023, average time on the market has improved slightly, while according to ooba Home Loans, first-time home buyer applications remained stable and actually increased marginally last year (2023) in Gauteng South and East, KwaZulu-Natal and the Free State. In addition, ooba Home Loans reports that the average concession relative to prime averaged -0.44% last year compared to -0.38% in 2022.

Bucking current trends, and also according to ooba Home Loans, the demand for investment or buy-to-rent properties soared in December 2023, rising to 14.9% of total applications – the highest since November 2008. Demand in the Western Cape remained the driving force behind the national rebound, accounting for a whopping 30% of total applications received in Q4 2023.

Reportedly, Pam Golding Properties is also experiencing increased activity and inquiries in the high-end luxury market from R25 million upwards in prime, sought-after locations, particularly in Cape Town, Johannesburg’s northern suburbs, and Garden Route areas such as Plettenberg Bay and Knysna.

It’s not only good news for the Western Cape, though, “We’ve already noticed a slight uptick in market activity in Gauteng,” says Clarke. “Positive election results in that province could certainly convince more buyers to stay. It’ll be interesting to see what happens to semigration patterns post-election, and how that influences local and national property trends.”

Repo rate aside, the national elections have a role to play

“Being an election year, we expect to see some property market fluctuations in the lead up to, and aftermath of, the provincial and national vote,” says Clarke. “There could be a temporary slump in market activity, particularly in the luxury residential and commercial market segments, as high-value investors wait to see the election outcomes.”

Should the elections go smoothly and ideally result in positive changes for the country, Clarke says the market will respond very positively.

“A good election experience with positive media coverage can be a powerful boost to consumer and investor confidence,” he says. “If everything goes well, we should see positive effects on the strength of the rand, renewed interest from foreign and local investors, and a more stable economy in general.”

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