MAIN IMAGE: Bradd Bendall – head of sales at BetterBond, Samuel Seeff – chairman of Seeff Property Group, Adrian Goslett – CEO of RE/MAX Southern Africa, Dr Andrew Golding – chief executive of the Pam Golding Property group, Berry Everitt – CEO of the Chas Everitt International property group, Chris Tyson – CEO of Tyson Properties, Leonard Kondowe – national manager at Rawson Finance, Rhys Dyer – ooba Group CEO, Lew Geffen – chairman of Lew Geffen Sotheby’s International Realty
Editor
“It’s been a tough year for homeowners with the prime lending rate holding steady at 15-year highs. So, the news that the prime lending rate will remain at 11.75% will knock the wind out of the sails of hopeful consumers after U.S. consumer prices fell unexpectedly, marking the smallest annual increase in a year. Amid the positive outcome of the recent elections and the Rand’s strong performance against the dollar, it was hoped that the Reserve Bank would relax its restrictive monetary policy and offer consumers some much-needed financial relief,” says Bradd Bendall, head of sales at BetterBond, echoing the general industry sentiment.
What’s happening in the market while interest rates remain high?
Samuel Seeff, chairman of Seeff Property Group, shares, “The high interest rate and living costs are especially affecting first-time buyers who cannot afford homes. Additionally, those with home loans are increasingly falling into arrears as the banks report growing numbers of distressed homeowners. This is concerning for the market and economy”.
There are still rays of light
“While the market overall has been subdued owing to high interest rates and affordability concerns, the property market is still active. Looking at how the RE/MAX SA network has performed, as of the end of June, we are 0.75% up on the number of units sold compared to last year. We are also 4% up on registered sales totals and 10% up on reported sales totals compared to last year. Although this is not true for all in the industry, RE/MAX SA continues to show growth despite the challenging market conditions,” says Adrian Goslett, CEO of RE/MAX Southern Africa.
Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, says the property market has already sparked in reaction to the GNU: “In the past month, Gauteng has got the biggest shot in the arm, with the number of sales in areas such as Randburg, in particular, blowing up.
There’s suddenly a huge appetite for properties around the R2 million mark, and the feedback we’re getting is that these buyers have been waiting to see what would happen with the election. Now, they’re diving in with alacrity”.
However, Geffen notes that, for the most part, the national market needs to recover by at least 20% to make up for the ground it’s lost in the past couple of years.
Has the market bottomed out?
The most interesting observation in the latest FNB Property Barometer* is that a “potential bottoming out” of the residential market occurred about a year ago – between the second and third quarters of last year.
So says Berry Everitt, CEO of the Chas Everitt International property group, who admits that buyer activity levels have been erratic since then, sensitive as they always are in SA to interest rates, consumer and business confidence, extreme weather events, the value of the rand and political uncertainties.
“However, we at Chas Everitt have been noting a slow but steady uptrend in both enquiries and sales since the last quarter of 2023, which has not been significantly disrupted by either pre-election anxieties or consumer disappointment at interest rate cuts have not materialised as expected this year. In fact, activity has gained momentum since the formation of the GNU last month, as we predicted it would.
“Meanwhile, as FNB notes, home values are on the rise, albeit at a glacial pace for now. The FNB House Price Index shows a national average YoY increase of 0,5% in June, for example, compared to a YoY increase of 0,3%.”
Taken together, these two trends indicate that the market is already slowly moving off the bottom despite the lack of interest rate movement this year, he says.
“At the moment, the market is being strongly supported by existing homeowners, with around 43% of transactions due to those who are downscaling due to life stage – from large family homes to retirement villages, for example – and to those who are downsizing due to financial pressure.
Good news for buyers
“Although there has been no drop, we are moving into very positive territory after the national elections which paves the way for a drop later this year. Meanwhile, for those who are in the market, it is a good time to buy at the lower-priced properties in the market,” advises Tyson Properties CEO Chris Tyson.
While ongoing economic pressure continues to affect buyers’ affordability, Leonard Kondowe, national manager at Rawson Finance, says lenders still remain eager for qualified home finance applicants.
“Applicants with pristine financial profiles can look forward to some very favourable home loan offers,” he says. “Lenders are pulling out all the stops to incentivise low-risk bondholders to join their portfolios.”
Rhys Dyer, ooba Group CEO, concurs, saying, “Healthy competition among the country’s major lenders has resulted in further attractive discounts to prime, with ooba Home Loan’s achieving an average weighted concession of -0.56% for Q2 ‘24 – down from -0.41% in Q2 ‘23.
The current levels mark the most competitive average rate achieved since 2014 and are proof that the banks are willing to provide additional support to home buyers while the higher for longer interest rate environment drags on. All things considered, the market is poised for recovery, and there is no better time to get a foot on the property ladder,” he concludes.
Rentals are also taking strain
The PayProp Rental Index for Q1 2024 showed that rental growth, while still in effect, fell for the first time since 2021 to 3.8% from 4.6% in the previous quarter. An uptick in economic growth could help lift rental growth again, but for now, high inflation and interest rates have reduced tenant affordability and limited rent increases.
Those pressures are likely to persist. Inflation isn’t expected to reach its 4.5% target until Q2 2025. On the other hand, high interest rates are helping to shore up rental prices as they deter first-time buyers, and it is still possible that rental growth could rally.
When will interest rates go down?
Dr Andrew Golding, chief executive of the Pam Golding Property group, believes that given that the country’s economic growth remains tepid, a reduction in the interest rate would have given the economy a much-needed kick-start, particularly as inflation is increasingly under control.
There is a case for local interest rate relief, firstly because there seems to be a likelihood of a US rate decrease following evidence of a slowing economy, a softening labour market and easing price pressures in recent weeks, but also because we have had two recent fuel price cuts – with the fuel price currently looking set to remain unchanged in August. Coupled with this, the strengthening in the Rand following the formation of the GNU (Government of National Unity) is helping to temper imported price pressures, and local food price pressures have also abated.
The likelihood that interest rates will begin to be cut at the MPC meeting in September (2024) has increased since the last (May) MPC meeting. This is the result of improvements in both the local and US inflationary pressures. The MPC is likely to prefer to wait for the US to cut—which is not imperative but would increase the MPC’s comfort that the time is right for cutting—and further evidence that local price pressures are easing.
