Interest rates are now at their highest level since 2016 after the South African Reserve Bank’s Monetary Policy Committee increased the repo rate by 75 basis points at its final meeting for 2022.
Three MPC members voted in favour of the 75 basis point hike, whereas the other two suggested a 50 basis point increase.
This increases the repo rate to 7% and the prime rate to 10.5% - slightly higher than just before the start of the Covid-19 pandemic. With a home loan of R2 million granted at the new prime rate, bond repayments will increase by around R1 000 a month. And since November 2021, monthly repayments on a R2 million home loan have increased by almost R4 500.
Reasoning
At the November meeting, South African Reserve Bank Governor Lesetja Kganyago cited high inflation and weak economic growth that continue to shape global conditions alongside monetary and fiscal policy responses among the reasons for the interest rate hike.
“Taking these and other factors into account, the SARB’s forecast for global growth in 2023 is revised lower to 1.9% - from 2.0%,” said Kganyago.
“The International Monetary Fund’s (IMF) October forecast for global growth is 3.2% in 2022 and 2.7% in 2023. We now expect the South African economy to grow by 1.8% - down from 1.9% - this year. Despite considerable volatility in monthly indicators, GDP growth of 0.4% is still expected in the third quarter. Fourth quarter growth is forecast to be only 0.1%, largely due to record levels of load-shedding.”
Industry comment
Samuel Seeff, chairman of the Seeff Property Group, says: “While the Reserve Bank has not brought any festive cheer to consumers and the property market with its latest interest rate hike, the outlook for the property market remains stable.
“The Reserve Bank’s decision to hike the repo rate for the seventh successive time now takes the rate to above the pre-pandemic level. Although we are disappointed that the Bank did not take the opportunity to pause, it is not a surprise and has been largely factored in by the market. That said, a pause could have provided a vital reprieve for consumers and homeowners, leaving more disposable money in the economy as we head into the busy festive season for the retail and tourism sectors.”
Leonard Kondowe, finance manager for the Rawson Property Group, says: “Buyer affordability has taken a knock over the last 12 months, with interest rates rising from 7.5% in January to 10.5% at the end of November. This has eaten into the average consumer’s disposable income to a significant degree, but it hasn’t slowed lending appetites. If anything, lenders are more motivated than ever to secure qualified buyers – particularly first-time buyers. They’re offering really favourable interest rates, at below prime for the most part. There are also 100% to 105% loans on offer for financially-secure buyers who prefer not to put down a deposit.”
Dr Andrew Golding, chief executive of the Pam Golding Property group, says the MPC’s repo rate increase will certainly be met with some dismay by consumers having to contend with the rising cost of living coupled with the dampening effect of ongoing load shedding on South Africa’s fragile economy.
“However, while October's inflation rate disappointed - up to 7.6% from 7.5% in September - business confidence showed surprising resilience in the final quarter of the year. This is despite concerns that recent bouts of prolonged load shedding might have caused a further sharp deterioration in business confidence.
“The positive upward trend in residential building activity bodes well for fourth-quarter economic activity, as does increased capital spending, particularly on renewable energy projects, as well as a continued recovery in the hospitality industry from a rebound in international tourism.”
Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says the latest interest rate hike was to be expected, especially considering global trends.
“With interest rates and inflation rising across the world, it could be expected that the MPC would increase rates in response to global uncertainty. This is why we have been encouraging homeowners for a while now to reduce their debt levels, as affordability will become an increasing concern over time.
“The effects of these interest rate hikes only become evident a few months after consumers adjust to paying the higher debt instalments. However, we have already started seeing signs that property market activity is shifting. Over the last two months, we have noted a rise in rental-related search terms and a decline in buying search terms, which points to a coming shift in the local housing market.”
Lew Geffen Sotheby’s International Realty chief executive, Yael Geffen, says both property owners and consumers as a whole face a bleak festive season and an even bleaker start to the new year.
“The latest rate hike means monthly repayments for homeowners with bonds of R2 million have increased by nearly R4 500 in one year. The government surely can’t believe that salary-earning South Africans can afford increases in that range in the space of 12 months, on top of headline inflation going through the roof?
“If there ever was a time for a hard-line economic turn-around strategy, it’s now because the long-term plans rolled out so far haven’t produced much for South Africans on the ground - except for longer periods of load shedding”.
High Street Auctions director, Greg Dart, says the government is placing the South African economy in an extremely perilous position.
“Load shedding isn’t the exception anymore; it’s the norm, and it’s costing South Africa an estimated R4 billion a day. How can the private sector sustain itself and its workforce under these conditions, especially given the added pressure of headline inflation remaining high and growth forecasts diminishing almost daily?”
Dart says with such economic uncertainty, however, investors should be looking at property as a safe haven long-term investment.
“Real estate is a tangible asset. Anyone with funds at their disposal right now should consider the value of property, which is likelier to deliver far greater returns in the long term than other investments, with the added advantage of being more secure.”
On a positive note, FNB chief executive, Jacques Celliers, says, "We must commend the SARB for its careful management of South Africa's monetary policy despite the headwinds in markets this year.
“Prudent monetary policy measures to protect our currency's value while managing inflation remain essential to shielding South Africa against turbulent times. As international trends indicate an uncertain outlook, it is even more critical for our country to stay the course in its monetary policy decisions.”
Writer : Sarah-Jane Meyer