The Monetary Policy Committee’s decision to hold the repo rate steady yet again, at 3.5%, should be seen as a reminder from the South African Reserve Bank to make the most of the favourable lending rate while it is in single digits.
However, Samuel Seff, chairman of the Seeff Property Group, says the decision by the South African Reserve Bank (SARB) to retain the repo rate at 3.5% (home loan base rate at 7%) is disappointing and out of step with the economy.
A rate cut would have provided a vital business and consumer boost ahead of the busy retail and holiday season, freeing up cash to spend in the economy at one of the most challenging times.
He says the third-quarter economic bounce-back is unlikely to result in a net growth position and overall the outlook remains negative as confirmed by Moody’s and Fitch. This combined with the benign inflation rate which, at just 3% is at the bottom of the Reserve Bank’s target range, was a strong enough case for at least a further 25bps rate cut.
One sector which has demonstrated the vital importance of appropriate rate cuts, is the property market, he says further. For the first time in a decade we have seen the interest rate driving demand which is exceeding analysts’ forecasts.
We have seen some of the best trading months in six years and in some instances, better than at the height of the last 2015/6 mini property boom. This is driven predominantly by buyers with stable employment, relatively unaffected by the Covid Pandemic, and the favourable mortgage lending conditions.
Seeff says further that it is not just first-time buyers, but the affordability of mortgage finance is also seeing buyers upgrading to bigger homes or better neighbourhoods as well as investing in second homes and rental properties where they find good value.
With some of the best bond approval rates in over a decade and buyers still benefiting from favourable mortgage loan terms, Seeff expects the buoyancy in the market to be sustained into the latter part of 2021. The market remains well-balance which means that prices are not running away, and South Africans will be buying property this festive season.
Fortunately, the South African Reserve Bank’s forecast is that the repo rate will only start to climb towards the end of 2021. Not only is it the ideal time to apply for a bond - as the lower interest rates have made homes 30% more affordable - it is also a good opportunity for those with the financial means to pay more into their bond to reduce their overall repayment period.
The five consecutive rate cuts that have seen the prime lending rate drop from 10% in January to the current low of 7%, have already resulted in the unexpected rebound of the property market. Instead of house price freefall and stagnant sales activity many expected in response to the pandemic, prices have strengthened - especially at the lower end of the market where demand is strong - and bond applications have exceeded pre-lockdown levels. “Most encouraging is that over 70% of BetterBond’s applications are from first-home buyers, which bodes well for the sustained recovery of the housing market,” adds Carl Coetzee, CEO of BetterBond
Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, is confident that interest rates will remain low for most of next year. “There is the possibility that there will be a slight increase of around 0.5 points for 2021, but this should not have a great impact on the property market. As things stand, the low interest rate (in conjunction with other factors) have created a housing market boom, particularly within the first-time buyers’ market,” he explains.
Goslett agrees that the property market made a remarkable recovery in recent months. “Our reported sales figures year-to-date for October are up by 3% from last year. This is following three months during hard lockdown (from April to June) where our sales figures dropped by as much as 62% year-on-year.” Coetzee says the amount required as a deposit on a bond has dropped across all price bands, with the average deposit for homes of between R1 million and R1.5 million coming down by 24% year on year in October. For bonds of between R500 000 and R 1 million, usually for first-home buyers, the average deposit required has dipped by almost 17%.
Coetzee adds: “Many attributed the initial uptick in bond applications and sales activity to pent-up demand, but the protracted recovery of the market suggests that the historically low interest rates have certainly been the predominant stimulus.” He concludes: “With interest rates likely to remain in the single digits until the end of 2022, we encourage buyers to make the most of this conducive lending period by investing in property.”
For Dr Andrew Golding, chief executive of the Pam Golding Property group, a strengthening in the Rand since the September MPC meeting, coupled with a softer oil price, a continued easing in the inflation rate, persistently weak economic growth prospects and an accommodative global monetary policy stance, all supported the case for a further 25 basis point easing in rates.
Adding that those who felt that the MPC was more likely to leave interest rates unchanged noted that October’s Medium Term Budget Policy Statement (MTBPS) had highlighted South Africa’s slower pace of fiscal consolidation and resultant elevated fiscal risks – prompting the MPC to err on the side of caution.
"Furthermore, the MPC has previously pointed out that the full impact of prior interest rates has yet to be felt – typically taking between 12 and 18 months to feed through the economy - and that a further 25 basis point rate cut would be unlikely to add any meaningful further stimulus. Indeed, the Reserve Bank Governor has said that the Bank has already done what it can to support growth and that it is now up to government to implement the long-delayed structural reforms to lift South Africa’s economic performance," he said.
Further saying that what we are experiencing at present is a continued strong uptake in demand for residential property acquisitions around the country – particularly in the price band up to R3 million, with additional encouraging signs of increasing activity at the top end of the market.
"While the real estate industry came to a virtual standstill during the months of the hard lockdown, the pent-up demand has surpassed expectations, and has now shifted into gear to what is hopefully translating into a sustainable ongoing momentum in the housing market," he added.
"The MPC has indicated that the repo rate will most likely remain unchanged at current levels until mid-2021, inching higher during the second half of 2021. While it remains to be seen how the country’s economic recovery gains traction, we believe that solid foundations and fundamentals remain in place for ongoing investment in the residential property market. This is especially so since, in addition to the usual reasons for movement in the marketplace, the lockdown has inadvertently created the rationale for a wave of new reasons for relocation and property acquisitions, from upsizing for additional space due to work from home scenarios to lifestyle moves to more appealing destinations further afield," he concluded
