Pam Golding Property Group
The Monetary Policy Committee’s decision to keep the repo rate stable was not entirely surprising, as the 300bps rate cuts for the year to date are still taking effect, given the fact that the economy was in lockdown during Q2, and with restrictions not yet fully lifted, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
“However, with Covid-19 infections receding, the announcement last night (16 September) of South Africa’s move to Level 1 is encouraging news for our economy, particularly the opening of international borders – albeit with conditions, and reducing the hours of the curfew, which will assist the tourism and hospitality sectors.
With inflation currently just 3.2%, near the lower end of the 3-6% target range, there was the possibility of a further reduction in the repo rate in order to provide relief for debt-laden consumers. As the economy has largely reopened, lower rates are now likely to have more impact by easing debt burdens for households and businesses, and it is hoped that we will see an additional reduction in the repo rate at the next MPC meeting in November.
Making the case for a further lowering of the repo rate is the limited Q3 recovery in South Africa’s economy which highlights consumers’ hesitance and limited ability to spend, with the return of load shedding casting a further shadow, while there is as yet no real sign of meaningful economic reforms or stimulus, resulting in both consumer and business confidence remaining severely constrained.
There are many potential recovery scenarios currently being touted as possible for both the economy and the residential property market. A true V-shaped recovery appears doubtful as the property market is unlikely to enjoy a fully sustained recovery in the absence of an economic recovery and accompanying employment creation, while a double-dip or W-shaped recovery also seems improbable as activity in the market is not expected to weaken to the same extent as during the strict level 5 lockdown.
More likely appears to be a Nike ‘swoosh’ recovery, which refers to a sharp downturn as we have experienced, followed by a slow, gradual recovery, which would also require a recovery in economic activity. It is clearly too early to pronounce on this but we have seen some tentative signs of recovery such as the Reserve Bank leading indicator, albeit that this is coming off a very low base. A further suggestion and possibility is the so-called ‘square root’ recovery, which would be a sharp downturn, followed by a sharp upturn and then a sustained period of stability.
Perhaps we could optimistically hope for a recovery somewhere between the two scenarios above. Will the current rebound in activity plateau or inch upward as economic activity slowly strengthens towards year end? The fact that we are in a low interest rate environment and banks retain their appetite for lending undoubtedly provides some support for the housing market recovery.
Looking ahead, the case for lower rates has been strengthened by the BER/FNB consumer confidence index remaining in negative territory, however, even if the Reserve Bank does not cut further, it appears likely that it will at least be able to keep rates at current lows for at least the balance of this year and well into next year. Weaker oil prices coupled with relative rand stability means a petrol price cut in early-October is possible, further helping to dampen inflationary pressures and providing additional relief to consumers.
In the residential property market currently, while particularly the middle and lower sectors of the market are still fuelling activity, the luxury market is also experiencing green shoots of increasing transactions. First-time buyers continue to boost sales, representing 54.5% of ooba’s home loans in July, while the trailing effective bond approval rate rebounded to 82.2% in July and is rapidly approaching levels seen in the months before lockdown. Furthermore, the approval rate for pre-qualified buyers of 91% and 79% for non-qualified buyers continued to recover in July, with the pre-qualified rate now back to pre-lockdown levels, according to ooba. Positively for home buyers, the average deposit as a percentage of purchase price remained relatively low at 8.2% in July, still close to May’s record low of 6.7% (ooba’s series started in mid-2007), while 100% bond applications stood at 63.2% in July, with an approval rate of 81.7% in the same month.”
Seeff Property Group
The decision by the South African Reserve Bank (SARB) to retain the repo rate at 3.5% (home loan base rate at 7%) is welcome news, says Samuel Seeff, chairman of the Seeff Property Group.
Unlike the rest of the economy, the residential property sector has reaped the benefits of the aggressive rate cuts resulting in a first-property buyer’s boom. The market up to R5 million to R8 million has also been buoyant, he says.
There has also been a mini coastal boom in areas targeted by semigration buyers, from Cape Town to Hermanus and Plettenberg Bay and the KZN North Coast. Those who are not moving permanently are setting up second homes where they can spend extended periods; the remote working trend being a major driver of this.
The improved affordability and pent-up demand following the hard lockdown has boosted June to August sales in many areas to pre-Covid levels and some to the highest levels in recent years. This has resulted in a surprising uptick in prices with FNB reporting 2.8% y/y growth for August, from 1.8% in July. Properties are currently selling at some of the fastest rates in recent years, being within 11 weeks on average compared to 14 weeks in the second quarter.
While the rates decision was expected following five aggressive rate cuts, Seeff says the significantly worse GDP data of a 51% y/y contraction in the second quarter and weaker outlook for the year leaves room for SARB to provide a rate cut at the next meeting. This will be a vital stimulus to reignite the economy which, save for the residential property market, has not seen any major impact from the rate cuts.
Looking ahead, Seeff cautions that we are in uncertain times. Although there has been a number of high value property sales, the luxury and investment sectors remain muted despite the good stock and relatively competitive pricing. These buyers are anxious to first see a return of confidence, decisive action on corruption including arrests and economic policy aimed at growth rather than debt accumulation.
In the meantime, buyers are able to take advantage of the lowest interest rate in over five decades. The positive activity in the market paves the way for more movement and new stock to come onto the market. Developers may also consider coming back if this is sustained, he concludes.
RE/MAX of Southern Africa
Following a streak of interest rates cuts, the Monetary Policy Committee (MPC) has announced no further relief for South African debt holders today by keeping the repo rate at 3.5%, leaving the prime lending rate at 7%.
According to Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, the MPC acted prudently by cutting interest rates at previous meetings. “As things stand, their previous cuts have already generated increased appetite in the first-time buyers’ market and has also increased activity within the property market in general. Keeping interest rates stable following these cuts will allow market activity to continue as it has been which will hopefully lead to further market recovery,” Goslett explains.
For those who can afford to do so, Goslett encourages buyers to enter the property market while interest rates are still low. “The way home loan repayments are structured, for the first five to ten years of the loan, bond holders are paying off more in interest charges than on the capital amount. Purchasing a home now means that buyers will benefit from the historically low interest rates during the interest-heavy portion of their home loan. This will result in substantial savings for these bond holders,” Goslett explains.
To provide an example of how much bond holders stand to save based on the earlier interest rate cuts, stats from South Africa’s leading bond originator, BetterBond, show that the interest savings over 20 years from 9,75% (the interest rate earlier this year) to 7% amounts to R623,585 on a R1.5 million home loan.
“At the current interest rate, bond repayments can be more affordable than the monthly rent. I would just caution new buyers to leave room in their budget so that they can still afford the repayments if interest rates later return to their previous levels of around 10%,” Goslett concludes.
