Further interest rate reduction needed to help boost housing market

While still facing economic headwinds, South Africa’s housing market would have benefited if the Monetary Policy Committee (MPC) had decided to further reduce the repo rate rather than keep the rate on hold, says Dr Andrew Golding, chief executive of the Pam Golding Property group. Another reduction would have further reinforced a positive outlook, thereby helping boost increased activity and growth in the residential property market.

“Action is needed to help kick-start the economy and boost confidence in general. This would have prompted many home buyers who are currently sitting on the fence to commit to purchase decisions, thereby fuelling increased activity and growth in the residential property market, which despite remaining resilient in the face of a range of challenges, is being hamstrung by a weak economy, which is largely attributable to political uncertainty and which in turn is impacting negatively on business and consumer confidence.”

According to South Africa’s largest mortgage originator, ooba, home buyers continue to face affordability constraints in the current economic environment, however, their recent statistics (July 2017) reflect an average deposit of 16.8% was required by lending institutions, down from 18.6% in July 2016.

Says Dr Golding: “This is on the back of the recent reduction in the repo rate in July, in a market which continues to demonstrate an ongoing appetite for property acquisition and investment, particularly among first time buyers.

“With about two thirds of South Africa’s citizens under the age of 35 years and many not yet home owners, first time buyers remain an important source of housing demand. This is confirmed by ooba, whose figures reveal that nearly half of all new mortgages are extended to such buyers.

“There’s no doubt that during times of intense economic and political uncertainty, investors often tend to favour ‘real’ assets like property. Not only do bricks and mortar assets offer the prospect of secure capital appreciation, but also the potential to generate a steady income stream, which is particularly welcome during uncertain times.”

Dr Golding says the country’s major metro markets are likely to continue to benefit most from this demand, since South Africa’s population is urbanising at a rapid pace, causing major metro populations to become both larger and younger.

“Interestingly, as the global reputation of South African cities continues to grow, the performance of some local metro housing markets may well begin to uncouple from local economic and political developments.”

The most obvious example is Cape Town, which, despite South Africa’s persistently sluggish national economy and heightened political uncertainty, continues to experience significantly increasing house prices of 10.9% for the period from January to May 2017 (source: Pam Golding Property Index) – fuelled to a large degree by an influx of homeowners from other provinces, closely followed by Nelson Mandela Bay’s Port Elizabeth metro area at 9.3% and then Durban at 5.3% - all exceeding the national average of 4.4%.

Says Sandra Gordon, Pam Golding Properties senior research and market analyst: “A number of other factors also appear to be contributing to the performance of city housing markets, despite the country’s current subdued economic outlook. In Gauteng, areas like Sandton, Rosebank and eastern Pretoria are also experiencing significant private investment in mixed-use developments and public infrastructure expenditure, as are various growth nodes on the KwaZulu-Natal North Coast.

“Another factor which may determine which metro housing markets are set to outperform the national average and even other metro markets is indicated by recent research by global property giant and Pam Golding Properties strategic partner, Savills. This suggests that major global demographic and technological changes are creating the conditions for the emergence of the ‘fifth age of cities’.

“According to Savills, the evolution of cities appears to have turned full circle, with the new age of cities looking surprisingly like the first. Global cities appear to be entering an age where the purpose of a successful city is to attract people, not traffic – to facilitate the flow of ideas, not just money and to nurture human capital, not just financial capital. So as an example, this may help explain to a large extent why housing markets in areas in and around the Cape Town CBD continue to flourish.

“In the tech industry, human interaction, chance collaborations and the free exchange of ideas adds significant value. As a result, skilled young professionals are moving away from the single use environment of purpose-built, out-of-town business parks and towards high quality urban environments. Ultimately the city itself becomes the source of attraction for skilled workers rather than the corporate entity. This, Savills notes, is especially true in the self-employed world of small start-ups and scale-ups, which form an important component of the tech industry.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 23 Jan 2018
      Many people only start thinking about home-ownership when they are ready to “settle down” or start a family, which is why first-time buyers these days are generally in their mid-30s, compared to those in the previous generation who were usually in their mid-20s.
    • 22 Jan 2018
      Moving away from the city to a country or coastal town and a slower-paced life is a frequent new-year resolution for South Africans, but thorough research should be done before you break free from the hustle and bustle, because making the wrong move could turn out to be a very expensive mistake, and even more stressful for you and your family than staying in the “big smoke”.
    • 22 Jan 2018
      Cape Town is home to many breathtaking and historic homes, but House Invermark designed in 1969 by South African architect Gilbert Colyn, with inspiration from two modernist icons: the Glass House by Phillip Johnson and Farnsworth House by Ludwig Mies van der Rohe is in a class of its own.
    • 22 Jan 2018
      2017 was a challenging year for the South African property market in general, despite small pockets of thriving activity in areas like the Western Cape. As we head into 2018, Tony Clarke, Managing Director of the Rawson Property Group, casts his eye forward to property trends and market influences that could make their impact felt in the New Year.
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us