Raised repo rate – implications for the property market

Raised repo rate – implications for the property market

Private Property South Africa
Sarah-Jane Meyer

The SA Reserve Bank Monetary Policy Committee (MPC) has decided to increase the repo rate by 25 basis points to 3.75% a year, with effect from November 19. As a result, the prime rate will rise to 7.25%.

Three committee members voted for an increase, with two members preferring to see the rate unchanged from the 3.5% of the past few months.

In his speech following the decision, Lesetja Kganyago, Governor of the South African Reserve Bank, said that the implied policy rate path of the Quarterly Projection Model (QPM) indicated an increase of 25 basis points in the fourth quarter of 2021, with further increases expected in each quarter of 2022, 2023 and 2024.

“As usual, the QPM repo rate projection is a broad policy guide, changing from one meeting to the next in response to changing risk factors and new data,” he said.

“Given the expected trajectory for headline inflation and upside risks, the committee believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well-anchored and moderate the future path of interest rates. However, economic and financial conditions are expected to remain more volatile. The MPC will seek to look through temporary price shocks and focus on second-round effects.”

He said the SARB has ensured adequate liquidity in domestic markets and will continue to monitor funding markets for any signs of stress closely. In addition, regulatory relief provided to banks will continue to support lending to households and firms.

Industry comment

• Pam Golding Property Group

Dr Andrew Golding, chief executive of the Pam Golding Property group, says the repo rate hike of 25 basis points to 3.75% is disappointing for first-time home buyers and those with existing mortgages.

  • “Despite potential risks, South Africa’s inflation rate remains close to the mid-point of the target. And though 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".

  • “Concerning 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. In comparison, house price inflation slowed to 4.2% in KwaZulu-Natal and Gauteng in October.

  • “However, the in-demand and more affordable sub-R1 million price band continues to register uninterrupted growth in house prices, averaging 5.5% for the year to date, compared with 5.1% for South Africa nationally and 2.5% for the over R3m price band.

• RE/MAX of Southern Africa

Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says that tough times are ahead for homeowners who have not left room in their budgets for this increase after months of record-low interest rates.

  • “We remain hopeful that this increase will not have too profound an effect on the property market,” says Goslett.

  • “Now that the economy has opened up further and vaccination rates are increasing, we could see an end to rising unemployment rates. The housing market is closely linked to economic performance, so greater economic stability is bound to improve housing prospects.”

• Rawson Property Group

Tony Clarke, managing director of the Rawson Property Group, says preparing for future interest rate increases would be realistic.

  • “The MPC has already expressed concern over the impact on inflation of Eskom’s tariff hikes and unstable oil prices. If inflation rises too far above the target midpoint of 4.5%, the SARB is likely to increase interest rates as a control measure,” he says.

  • “We’re expecting a slight increase again in the new year, so homeowners still have some time to prepare. Careful financial planning is going to be key in 2022."

  • Economic growth forecasts for 2022 are conservative at best, with load shedding threatening the already low 1.8% GDP growth predicted. However, Clarke says the property market remains full of opportunity for buyers, sellers and homeowners – particularly over the festive season.

  • “The number of listings often drops over Christmas and New Year, so sellers who put their properties for sale then have far less competition," says Clarke. "The festive season's focus on friends and family also presents a great opportunity for sellers to tap into the holiday spirit. In addition, highlighting a home's summer side and entertainment potential can work wonders at this time of the year.”

  • For buyers and investors, Clarke says property prices remain favourable, and because interest rates probably won't increase rapidly in the near future, they're still likely to be suitable for some time, making this an excellent time to buy.

  • “Now isn’t the time to push affordability,” he says, “but it’s a great time to buy low and pay off your debt faster.”

  • He advises existing homeowners to focus on reducing unnecessary spending and making their bond repayments their financial priority.

    “Putting extra income - like year-end bonuses - straight into your home loan can deliver significant long-term savings.

  • "Above all, buyers, sellers and homeowners should enjoy their homes this festive season, be financially responsible, and not panic over what 2022 may bring. We may have some challenges in-store, but they’re nothing we haven’t faced many times over,” he says. “Property remains an excellent and stable investment, outperforming many other asset classes.”

Recovery

FNB chief executive, Jacques Celliers, believes the rate hike by the SARB is a sign that economic recovery is underway.

“The rate adjustment should be read in the context of improving domestic demand, rising global inflation, and normalising global interest rates. Domestic economic recovery continues despite a few setbacks along the way, spearheaded by better-than-expected household consumption expenditure and strong demand for our export products.

“Improved consumer mobility, combined with the swift recovery in non-labour income, including strong dividend pay-outs as well as continued income support grants to economically vulnerable households, has inspired greater economic participation by consumers,” says Celliers.

“Looking ahead, we hope the vaccination momentum will be sustained to minimise the impact of a potential fourth wave. We're also hopeful that the national electricity grid can be stabilised to enable sustainable economic growth. Finally, as this is the last MPC for the year, we commend the SARB on their approach to managing interest rates, as stable monetary policy is critical to our economy,” says Celliers.

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