The South African Reserve Bank’s Monetary Policy Committee (MPC) kicked off the new year with an announcement that the repo rate will increase by a further 25 basis points to 7.25%. This is the eighth consecutive time the MPC has increased the repo rate, increasing the prime lending rate to 10.75%.
This increase was not surprising, and property professionals say the effects of the ongoing increases are starting to be felt. However, most are still upbeat about property market prospects for 2023.
WATCH : Saving and investing in a time of rising interest rates.
Industry comment
Regional director and chief executive of RE/MAX of Southern Africa, Adrian Goslett, expects interest rates to increase by about 1% over the course of the year. He advises homeowners and prospective buyers to make room in their budget now rather than be caught short if interest rates do increase further.
He says the effects of these interest rate hikes are already slowly becoming more evident. “The total number of registered transactions lessened during the last quarter of 2022. Following this latest interest rate hike, it is likely that the property market will quieten down somewhat further over the course of the year.”
He also encourages agents to prepare themselves for a less active housing market. “Agents will need to prioritise building a reserve fund to see them through the months where no earnings are coming in,” he says.
Samuel Seeff, chairman of the Seeff Property Group, says that although rate hikes are never welcome, they are largely expected and factored in by the property market.
“Perhaps the SARB could have paused with this increase as a reprieve to the economy and consumers, especially in view of the growing Eskom energy crisis. There are ample reasons to do so,” says Seeff.
“Inflation - down in January to 7.2% from 7.4% in December - appears to have stabilised here as well as in many global markets including the US. There are expectations that the FED may now halt rate hikes as a reprieve to the US economy.
“Global energy prices have settled, and the rand has stabilised. We hope the interest rate will stabilise and support stability in the economy and property market. It seems that we could perhaps again start seeing the rate come down towards the latter part of 2023.”
Dr Andrew Golding, chief executive of the Pam Golding Property group, says it was a close call for the MPC.
“Before the repo rate announcement, commentators were divided on whether the repo rate would be increased by 25 or 50 basis points. Some even called for a pause in the upward cycle,” says Golding.
“As global and local inflationary pressures begin to fade, we hope we have now reached the peak of the interest rate cycle. The repo rate is currently 75 basis points higher than in the months before Covid.
“With inflation clearly beginning to subside, and with monetary policy impacting on the economy with a lag, we have yet to see the full economic effects of the 2022 rate hikes on an economy already weakened by persistent load shedding. Some analysts argue that this should allow the MPC scope to slow the pace of additional rate hikes. In raising the repo rate by just 25 bps, the January MPC meeting has provided some breathing space for aspirant homeowners and those with mortgages.
“The higher interest rates have affected first-time buyers, with ooba statistics showing that applications from first-time buyers slipped to 45.8% in December 2022 – the lowest level since early 2017. However, overall approval rates continued to increase in December, with both the trailing effective and first-time approval rates approaching previous record highs.”
Lew Geffen Sotheby’s International Realty chief executive, Yael Geffen, says the MPC’s latest repo rate hike of 25 basis points is yet another blow to South Africans, whose salaries are dropping while cost-of-living increases spiral out of control.
“The economy is going to keep taking a battering until the government acts decisively to end the country’s power crisis. This is one of the main reasons the SARB has again slashed the growth forecast to a measly 0.3% for this year,” says Geffen.
“People simply aren’t coping. While average salaries fell by 6.9% across the country last year, on a new home loan of R2 million at the prime rate, monthly mortgage repayments have rocketed R4 800 since November 2021.”
Geffen says sectors of the property industry will feel the impact of the hike in the first half of 2023.
“Many buyers are likely to hang on until later in the year when forecasts say the repo rate will peak at 7.5%, and with any luck, we may even see a rate cut before December.”
A disappointed High Street Auctions director, Greg Dart, said the MPC should have balanced inflationary concerns with the heavy economic burden already being carried by South Africans.
“Industries that employ the majority of economically-active people in this country are haemorrhaging billions in revenue because of load shedding that’s completely out of control.
“This has a direct impact on incomes, which are decreasing as cost-of-living expenses continue to rise. According to recent figures in BankservAfrica’s Take-Home Pay Index, average salaries fell by 6.9% in real terms last year.
“Couple that with 2023’s headline inflation forecast of 5.4%, it is clear the SA economy is close to breaking point. The ability to save is now beyond the means of most South Africans, who survive pay cheque to pay cheque - if they’re lucky.
Dart says the small silver lining with this announcement is that the repo rate hike – which now pushes prime lending to 10.75% - was capped at 25 basis points after three consecutive 75 basis point increases last year.
“With any luck, the repo rate will also cap at 7.5% later this year, and we might even see a rate cut again before the year is out.
“For the property industry, it means the first half of the year is going to be tough. Investors are likely to adopt a more conservative wait-and-see approach, and the residential market is probably going to feel the effect of more properties coming to market with a much smaller pool of buyers able to commit.
“On the positive side, anyone who is able to spend at the moment could get some good deals across real estate sectors. It’s a good time to buy if you’re not servicing a big mortgage.”
Writer : Sarah-Jane Meyer