Interest rates announcement - property industry reacts

The Reserve Bank’s decision to hike the repo rate by 25 basis points to 3.75% (base home loan rate to 7.25%) is a shock to the economy, premature and bad news as we head into the festive season, said a disappointed Samuel Seeff, chairman of the Seeff Property Group.

The SARB should have waited until next year. We are disappointed at the hawkish stance especially since inflation has remained flat for the second month. I am of the firm view that the SARB should be taking a more aggressive approach to supporting the economy as central banks have done globally, he says.

While the economy has surprised on the upside, Seeff says the post-pandemic recovery needs more support. Consumers need the reprieve and extra disposable cash as we head into the traditionally busy festive season for the retail sector.

Nonetheless, Seeff says it is still a great year to put property on your Christmas list. The increase in repayments is minimal, and home loans are still more attainable. You can still get out of your rental, buy a bigger house or move to a better neighbourhood as buyers have been doing since mid-2020.

A R1 million loan over 20-years will now cost around R7 904 (from R7 753) per month. On R1,5 million, it will be R11 856 (from R11 629). Even at the higher prices, the increase is minimal with R2 million costing R15 808 (from R15 506) and R3 million around R23 711 (from R23 259), under R500 more.

He says the interest rate and positive mortgage lending conditions which are the best since 2007 have been a game changer for the housing market which remains the good news story of the economy, supporting the post-pandemic recovery.

Despite the moderating activity following the buyer frenzy of late last year, the market remains robust with sustained demand in most areas. Seeff says overall transaction volumes have recovered back to the 2019 pre-pandemic level and the market is only about 7% below 2015 to 2018 average.

This has been the best sales year for Seeff in our 57-year history. We have achieved record prices of up to R55 million and R60 million in Plettenberg Bay, R45 million at the Waterfront (highest since 2012) and have just concluded the highest price by an agency in Camps Bay at R52 million.

We expect more of the same going into 2022, supported by the interest rate and favourable mortgage lending conditions. Seeff says the expectation is that the rate should remain fairly flat with any increase likely to be fairly benign at least until the end of next year.

That said, we remain in uncertain times while the pandemic lingers. The resurgence of Eskom blackouts, drastic petrol price hikes, inflation concerns, and premature interest rate hikes could slow economic growth. Naturally, a weak growth environment could negatively impact the housing market.

It is still one of the best times to buy a house in over a decade. There is a steady flow of good stock onto the market which, unfortunately for sellers, means market-related asking prices are key to a faster sale and higher selling to asking price ratio, especially in the higher price bands, he says.

Buyers will need to act quickly though, especially in the lower price bands and high-demand areas where there is no shortage of willing buyers looking to capitalise on the favourable market conditions.

Close call for MPC – repo rate hike disappointing for home buyers with mortgages

Comment from Dr Andrew Golding, CE of Pam Golding Properties:

Faced with local and global inflationary pressures, a weak domestic economic growth outlook and the potential for a fourth wave of Covid infections, the Monetary Policy Committee’s decision regarding the repo rate was a close call.

Despite potential risks to the upside, South Africa’s inflation rate remains close to the mid-point of the inflation target, and while it is widely acknowledged that interest rates need to start normalising soon, there are concerns that raising interest rates now may hamper our still fragile economic recovery, so today’s decision by the MPC to increase the repo rate by 25bps to 3.75% is disappointing for first-time home buyers and those with existing mortgages. The prime rate now rises to 7.25%.

In regard to the housing market, and according to the Pam Golding Residential Property Index, as demand growth slows relative to supply, national house price inflation has eased from a peak of +5.3% in May to +4.7% in October 2021. The Western Cape is once again bucking the national trend, with house price inflation remaining elevated at +6.6% in recent months, while house price inflation has slowed to 4.2% in both KwaZulu-Natal and Gauteng in October 2021.

However, the high-demand and more affordable sub-R1 million price band continues to register uninterrupted growth in house prices, averaging at +5.5% for the year to date, compared with +5.1% for South Africa nationally and 2.5% for the +R3 million price band – also for the year to date.

Interestingly, the surge in freehold price inflation - due to the demand for more space due to the lockdown and remote working trend - is slowing, with price growth in both housing categories now slowing to +5.3% for freehold and sectional title at +2.7% in October 2021.

In South Africa’s major metro housing markets, Nelson Mandela Bay’s robust house price growth of 7.1% in July 2021 (latest available Lightstone data) continues to lead, outperforming Ekurhuleni, which continues to accelerate - reaching +6.6% in October. Cape Town, which was the last major metro housing market to recover, continues to rebound to 5.0%, while house price inflation in eThekwini (5.4%), Tshwane (4.5%) and Johannesburg (3.8%) continues to stabilise.

Encouragingly, according to ooba, in October almost half (49.1%) of all mortgages extended were to first-time home buyers. After a post-hard lockdown peak of 56.2% in May 2020, the percentage of first-time buyers declined but now appears to be stabilising at around 50%. After a sharp rise following the aggressive rate cuts in early-2020, the average bond size appears to have peaked in August 2021 at R1.3 million overall and at R1.06 million for first-time buyers – although the current size of bonds remains close to these levels.

After a peak of +0.2% in May 2020, the average concession relative to the prime rate declined steadily – moving into negative territory in late-2020. At -0.2% in October, the average concession below prime is at the lowest level since mid-2010 – making it a particularly favourable environment for potential homeowners to secure a bond. 

Positively for mortgage applicants, both the average (trailing effective) and first-time buyer approval rates have risen in recent months – reaching 82.8% and 81.7% respectively in October 2021, while deposits as a percentage of purchase price are again declining, easing to 7.6% on average and 7.4% for first-time buyers in October 2021. The approval rate for 100% bond applications improved sharply in October – rising to 84.1% on average and to 82.9% for first-time buyers. At current levels, approval rates for 100% loans are close to the pre-Covid highs of February 2020.

While there remain variances in activity and demand across various regions, cities and towns depending on the movement of homeowners and the respective affordability of property and desirability of each location, Pam Golding Properties reports sustained volumes of sales transactions nationally, underlining ongoing consumer confidence in home ownership.

Rates announcement disappointing

After months of enjoying record-low interest rates, South African debt holders now face slightly higher repayments as the Monetary Policy Committee (MPC) has just announced that the repo rate will increase by 25 basis points to 3.75%, leaving the prime lending rate at 7.25%.

While remaining hopeful that this increase will not have too profound of an effect on the property market as a whole, Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, warns that tough times are ahead for homeowners who have not left room in their budgets for this increase.

Despite this, Goslett explains that the RE/MAX network continues to record record-breaking sales totals across the country ever since interest rates dropped last year. “Year-to-date September, our reported sales totals is up by 45% while property registrations are up 75%. This hyper-activity is largely owing to the low interest rates as well as a change in lifestyle brought about by the pandemic,” says Goslett.

“My hope is that this interest rate hike will just bring activity back to normal volumes,” he adds. “Now that the economy has been allowed to open up further and vaccination rates are increasing, the hope is that we’ll see an end to the rising unemployment rates. The housing market is very closely linked to how well the greater economy is performing, so we remain hopeful that these factors will contribute towards greater economy stability, especially now that interest rates have been raised,” says Goslett.

As a final word of advice, Goslett says that there will be opportunities in any market – you simply need to know how to find them. “Seek the advice of your nearest RE/MAX agent who can keep you informed on the latest market conditions and any new opportunities as and when they arise,” he concludes.

Bruce Swain, Leapfrog Property CEO says:

"Today's announcement by the South African Reserve Bank's Monetary Policy Committee to lift the repo rate by 25 basis points to 3.75%, which puts the prime lending rate at 7.25%, is not unexpected. We've enjoyed a record-low interest rate for a while now but it was never going to be a sustainable, long-term aarnagement. 

The decision will certainly have an impact on affordability when it comes to property ownership and will necessitate a more stringent and frugal approach to managing household finances. Having said that, we still encourage first-time buyers to consider entering the market, even if that means making sacrifices in other areas. Property remains a robust, long-term investment and there are always good opportunities worth seeking out."