Yesterday the MPC announced that the interest rate would increase by 25 basis points resulting in a prime interest rate of 7.5%
This increase was not unexpected - but many had hoped there would be a pause in the upward cycle trend.
Says Dr. Golding: “With the December consumer inflation rate (at 5.9%) close to the upper limit of the Reserve Bank’s inflation target and with local risks to the inflation outlook firmly on the upside – the MPC was likely to take this decision to increase rates now. Notwithstanding this, the interest rate will hopefully increase slowly and over an extended period.
This sentiment is shared by Adrian Goslett Regional Director and CEO of RE/MAX of Southern Africa. "Although aware that a cycle of interest rate hikes was likely to be in the cards for 2022," he said, "we were hopeful that the interest rate hikes might occur more gradually over the year."
Goslett adds that the more gradually interest rates climb, the less of an effect it will have on the housing market as a whole.
"The decision by the SARB to increase the repo rate was entirely expected and is unlikely to affect the momentum in the property market," says Samuel Seeff, chairman of the Seeff Property Group.
Golding added that despite the increase, for aspirant first-time homebuyers seeking home loans, the average rate of concession remained at -0,2% below prime in December, which is the lowest rate since mid-2010, as banks continue to compete for market share.
Repeat buyers fared even better, with an average rate of concession of -0.4%. Additional indications of favourable lending conditions include the 5.5% increase in the size of mortgages in Q4 2021 compared to year-earlier levels and the 24% decline in deposits as a percentage of the purchase price during the same period. During the final quarter of last year, deposits stabilised at 7.0% of the purchase price compared to 9.2% in Q4 2020.
He says that "Pam Golding Properties continues to see encouraging momentum in sales activity in the housing market," and they believe that a moderate rise in interest rates will likely lead to the "buy-vs-rent dynamic shifting back towards rentals, possibly reinforcing the rising demand for investment properties seen in late 2021."
Seeff adds that even with the hikes, the rate remains at the lowest levels in decades and will continue serving as an inducement to buyers. They expect the market to absorb the hike comfortably and for the momentum to continue.
Says Dr. Golding: “The positive start to the year in terms of enquiries and activity, underpinned by ongoing consumer demand and favourable lending conditions, heralds an encouraging outlook for 2022.”
Regarding the outlook for the rest of the year, Goslett remains cautiously optimistic for whatever lies ahead. “The property market has experienced two years of hyperactivity despite the economic challenges we have faced. While it is likely that we will see activity subside this year along with any interest rate hikes, the South African real estate market is resilient and the demand for homes will always exist in some shape or form. The key to generating good returns on your real estate investments is to stay informed of local market conditions by seeking the advice of a trusted real estate professional,” he concludes.
Seeff expects another good year for the property market and says it remains particularly favourable for buyers. The momentum will continue creating opportunities for sellers, and aside from continued trade in the sub-R1.5 million price band, we anticipate strong activity in the R3 million to R8 million range.
"Despite the rate hiking cycle now in effect, it is still the best buyer’s market in decades, supported by bank lending which remains the best in over a decade with higher loan-to-value bonds available and first-time buyers still able to secure 100% bonds, often with a cost allowance on top of that," adds Seeff
That said, the rate hiking cycle signals some caution for buyers and homeowners to be mindful that we are likely to see further hikes this year and they must build that into their homeownership plans.
At a prime lending rate of 7.5%, homeowners can expect to pay a nominal R152 extra on a bond of R1 million. Of course, this amount increases with the value of the bond, but the additional monthly payment is still well below what consumers were paying at the start of 2020 when the prime lending rate was at 10%.
"With moderate interest hikes forecast for the next three years, we urge aspirant home owners to take advantage of the current lending environment," concludes Carl Coetzee, CEO of BetterBond.
