Hardie Minute

Breaking News! The SARB’s Monetary Policy Committee decided to keep the repurchase rate at its current level of 8.25% per year.

Repo rate pause great news for consumers and property heading into festive season

The decision by the Monetary Policy Committee to keep the repo rate unchanged at 8.25% (prime and base home loan rate 11.75%) is great news for the economy and property market, says Samuel Seeff, chairman of the Seeff Property Group.

While we would have preferred a small rate cut as a boost heading into the busy season for retail and real estate, we are nonetheless pleased at the Bank’s decision, especially given the inflationary pressure. This also follows suit from other main central banks (the Fed, ECB and BoE) who have kept their rates unchanged.

Seeff says further that while the market has contracted, it has remained resilient and in many areas is still ahead of the 2019 pre-Covid figures as buyers have sought to take advantage of the favourable buying conditions.

The Cape for example has seen another excellent year with the upper end of the market still producing sales upwards of R20 million to over R100 million this year. Regardless of the challenges, people have continued to buy and sell property and it was a good year, all things considered.

Aside from the continued positive mortgage lending conditions, Seeff says the market is further supported by the flat prices and loads of good stock on the market. Sellers who are listing at the correct asking price are still finding buyers, if not, they may have to relook their price, or wait a while.

The upside, he adds, is that we can look forward to entering the 2024 year with the hope that interest rates will start coming down by around midyear if the economy can settle and conditions are stable.

Good news for homeowners: Interest rates remain unchanged

The Monetary Policy Committee (MPC) announced today that interest rates will remain stable at 8.25% (repo rate), leaving the prime lending rate at 11.75%. This comes as some much-needed relief as many debt holders are struggling to keep up with repayments, even at the current rates.

Given that inflation increased to 5,4% in September from 4,8% in August, it is understandable that interest rates would either have had to remain steady or possibly could have even increased to keep inflation in check. Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that the decision to keep them steady is a relief for the property market, as many homeowners are already starting to reach out for help to cope with the higher home loan repayments.

“According to our distressed property sales division, compared to the same period in 2022 to year-to-date November 2023, there has already been a 40% increase in the number of mandates received from the banks’ distressed property programs. What’s more, there has also been a 160% increase in the number of clients our agents have referred to their banks for assistance in signing up to their distressed programs,” says Goslett.

Given the current economic outlook, the hope is that interest rates will at least hold steady for the next few months, but Goslett warns that the possibility for further interest rate hikes are not completely off the cards. “My advice to consumers at this time is to manage their debt levels closely and to reach out for help if they notice that they are in over their heads,” he advises.

To real estate professionals, Goslett warns that despite the good news of interest rates remaining stable for now, the market is still likely to remain slow. “Affordability levels are a problem at the moment, which means that it will still be challenging to find qualified buyers who are willing to purchase within the current market conditions,” he notes.

Despite this, Goslett mentions that a well-priced home marketed by the right real estate professional will still sell timeously within this market. “Real estate professionals will just need to work closely with sellers to manage expectations and to help them set realistic asking prices,” he says.

Interest rate remains unchanged heading towards the festive season

“Pegging interest rates at their current levels is definitely a step in the right direction for the property market right now,” says Leonard Kondowe, Finance Manager for Rawson Property Finance.

Stats SA’s latest figures show that inflation had already begun increasing in September, rising to 5.4%, up from 4.8% in August and 4.7% in July. This was largely attributed to escalating fuel prices. Those fuel prices received a sizeable reduction as of 1 November, however.

“The drop in fuel prices makes a real difference, but it’s impossible to guess how long it’ll last, or whether its effects will be enough to stem the rising tide of inflation,” says Kondowe. “Many economists predicted that the MPC would resort to increasing the interest rate again this month to control this risk. Personally, I was glad that they decided to keep the rate the same for now, and adjust if necessary in the new year.”

Should the interest rate go up in future, Kondowe says property along with other markets will feel the pinch. There are already huge numbers of homeowners struggling to make ends meet, and any further interest rate increases will only exacerbate those issues,” Kondowe says. “The distressed property market is busier than ever, but the lack of affordability means the pool of qualified buyers is also very small. Anything that erodes affordability – whether that’s fuel price hikes, cost of living expenses or interest rates – is going to chip away at that pool even more.”

Silver linings, however, include the fact that lenders are increasingly hungry to secure qualified bond applicants, leading to a very competitive lending market. “Lenders are definitely bringing their A-game when it comes to winning over bond applicants,” says Kondowe. “That’s not to say they’re being lenient on qualifying conditions – those are still as strict as ever – but for applicants with a strong financial history and good affordability, there are some very favourable finance opportunities out there.” Common techniques used by lenders to “sweeten the pot” for bond applicants include offering preferential interest rates to those willing to move their primary bank account to the same brand.

“Lenders seem to be taking a ‘bigger picture’ approach to property finance,” says Kondowe, “using it as a way to secure long-term customers across a much wider range of banking products. Understanding this trend can be useful when it comes to negotiating mortgage offers.”

As for what consumers can do to improve their financial resilience, Kondowe says the key is to curb unnecessary spending and reduce debt.

“This time of year is always difficult,” he says, “but if you’re one of the lucky ones getting an end-of-year bonus, the very best thing you can do with it is pay off any small debts you have hanging around. Even if it’s just one store account, one credit card, one lay-by – the fewer expenses you have eating away at your monthly income, the more resilient your financial situation will be

Unchanged repo rate ends year on a positive note:

Dr. Andrew Golding, chief executive of the Pam Golding Property group says after initial concerns that renewed inflationary pressures (with headline inflation rising in recent months on the back of higher food and energy prices) would prompt the MPC to hike interest rates once more at this week’s MPC meeting, the announcement that the repo rate would once again remain stable hopefully indicates that the tide has indeed turned – that the current interest rate cycle has peaked and that we may now anticipate the likely timing of the first interest rate cut during the course of next year (2024).

It is also positive for existing homeowners with mortgages, or those seeking credit in order to downsize, upsize or simply relocate in accordance with changes in lifestyle or other requirements.

The rising cost of living and series of interest rate hikes have weighed on local household incomes. With price pressures easing and the prospect of interest rate cuts on the horizon – plus some easing of the severity of loadshedding in recent months – this should go some way towards galvanising the local housing market in early 2024.

The shift towards a more optimistic outlook in regard to the repo rate resulted from a number of favourable trends in the international environment, notably:

  • Confirmation that US inflationary pressures are subsiding has reinforced the view that the Federal Reserve Bank has finished hiking interest rates, weighing on the dollar and supporting the rand, which has strengthened since the last MPC meeting,
  • The oil price has eased which, combined with a stronger rand, signals the potential for a cut in the petrol price of at least R1 per litre in early December 2023.

However, another view is that while the hiking phase of the current interest rate increases may have ended, interest rate cuts may still take a while to materialise. This is due at least partially to the fact that a large number of risks and uncertainties remain globally. Oil-producing nations (Opec+) plan further output reductions, conflicts in Ukraine and particularly the Middle East could escalate, while local factors – including loadshedding and Transnet’s logistics failures – could further fuel local price pressures. The rand, as always, remains vulnerable and therefore potentially volatile – which presents challenges for the local inflation outlook.

One can, however, take comfort in the fact that even as the headline inflation rate rose to 5.9% year on year in October from 5.4% in September, the core inflation rate (excluding food and energy) fell to 4.4% in October from 4.5% in September, suggesting that recent price pressures are not becoming more broad-based.

While this is the third consecutive interest rate hold, the MPC’s focus remains on anchoring inflation expectations around the mid-point (4.5%) of the inflation target. Inflation expectations remain high at present, and having raised interest rates aggressively, the MPC may be reluctant to ease too quickly given the ongoing inflation risks. Much will depend on the timing of US interest rate cuts, as this will provide scope for the MPC to cut local interest rates without potentially risking renewed rand weakness.

The Fed has signalled its own reservations about the US inflation outlook and so it too is likely to proceed with caution. The timing of rate cuts next year will depend on future economic developments, but currently, it seems that they are only likely to materialise during the second half of the year.

Further complicating the outlook in 2024 is the prospect of US and South Africa’s elections next year, although the recent decision by S&P Global to affirm SA’s credit rating is a reassuring sign of stability.

Generally speaking, the outlook for 2024 is likely to show a noticeable improvement in a number of key residential property metrics when compared to 2023. Dominating this improvement in outlook will hopefully be the start of a downward trend in interest rates which nearly always signals an uptick in activity and which, as a consequence, is also likely to herald the start of a cycle of real house price growth. In recent months, growth in house prices nationally has stabilised at 3.3%.

Furthermore, with the toll that loadshedding took on the economy in 2023 expected to ease significantly during the course of next year, prospects for growth should improve.

We also anticipate a continued divergence between the performance of different regional and metro housing markets – reflecting both the stability of the local municipality, the affordability of homes, the strength of the local economy and the lifestyle offering of the town/suburb. This will make location an increasingly important factor.

Interest rate decision a relief for first timers

First time homeowners have been hardest hit by a steady upward trajectory of interest rates in South Africa – and are probably the most relieved by the Reserve Bank’s decision not to hike interest rates ahead of the festive season, according to founder and chairperson of Tyson Properties, Chris Tyson.

Tyson, together with Tyson Properties CEO, Nick Pearson, has welcomed the decision by the Reserve Bank’s Monetary Committee to leave the repo rate at an unchanged 8.25%, saying that this move would inject a little more confidence into the property market come year end.

“It’s certainly going to be a good thing for both buyers and sellers and might just provide some extra confidence which we do need. We had a strong start to the year, but the past three months have been a little slower. I think that if we now get a levelling off period, a gap during which things can settle a bit, it will certainly stimulate the economy. Hopefully, by the middle of next year, we will see one or two decreases in the interest rate,” Pearson said.

Tyson said he believed that the country had reached the top end of the interest rate cycle for now.

Interest rates reached their lowest ever during the pandemic, tempting many first-time homeowners into the market. However, since November 2021, bond repayments have increased steadily on the back of continued interest rate hikes with the current prime lending rate at 11.75%. This has put massive pressure on those repaying bonds whilst also having to contend with climbing food prices and petrol prices and shrinking disposable incomes.

According to research from Lightstone, many of those who benefitted from buying when the prime interest rate hit a multi-decade low of 7% in 2020 and remained below 8% until May 2022 had ultimately overstretched themselves and were now being forced to sell because they could no longer meet their high bond repayments.

Lighthouse’s research showed that the number of homeowners being forced to sell properties they had only bought two years prior had jumped from 2% of total sales in May last year to 3.7% a year later, an increase of more than 80%.

Although Tyson expects this to level off, he nevertheless advises a common-sense approach to buying properties going forward. “I don’t want to give the impression that interest rates will fall to ultra-low post-Covid levels again. They might come down 1% or 2% next year, but then they will probably sit at that level for some time, as they have in the past.”

He said that although market conditions could be expected to improve in the wake of an expected interest rate drop next year, growth was likely to be subdued during an election year with many investors waiting out any uncertainty. As a result, the property market was only likely to show a decisive improvement from the beginning of 2025.

Tyson pointed out that, although there were still a lot of deals to be done in the Johannesburg residential market, the entry level segment had come under very real pressure with large numbers of young people opting to rent rather than buy due to high interest rates. In Johannesburg, Tyson Properties has more tripled its rental portfolio over the past two years.

Nevertheless, he added that many areas were still in positive territory.

“Although interest rates have played a big part in the market over the last year-and-a-half with some areas dropping by as much as 46%, we are finding that properties located in areas that offer a good lifestyle, affordability, security, convenience and good schooling are still selling well,” he said.

Tyson said Tyson Properties was seeing growth in all three of its primary markets – Cape Town, Gauteng and KwaZulu-Natal as well as in the Eastern Cape. Hot spots, which included Cape Town and Western Cape Towns such as Somerset West and Paarl and the KZN coastal town of Ballito had also seen spikes in interest as had small towns in the Midlands where people were buying to achieve a different way of life.

Unchanged repo rate welcomed:

High Street Auctions Director Greg Dart has welcomed the MPC’s decision to leave the repo rate unchanged, given the challenges the business sector has faced this year.

“Data just out from the latest Business Confidence Survey shows that South Africa’s business confidence slipped further in the fourth quarter as consumer income remained under pressure from high borrowing costs.

“Those costs are based on the repo rate, which while unchanged by the MPC, is still at a 14-year high. Household finances are troublingly weak, and are unlikely to improve on the back of surging annual consumer price inflation that reached 5.9% in October, up from5.4% in September.

“While the unchanged prime lending rate is extremely good news, the country is far from out of the woods.

“We need the government and the Reserve Bank to work harder to bring about real and lasting economic change. Food price inflation is still too high, the cost of electricity is huge and grid instability is a grave threat to the country as a whole.”

Dart says the property market will certainly benefit next year if the repo rate comes down as economists are currently predicting.

“The South African business sector and consumers as a whole need some breathing space. We’re resourceful; given just a bit more wiggle room in the form of a reprieve from high rates and rocketing inflation, we’ll grow the economy. It’s what we do.”

Unchanged repo rate a welcome surprise

Lew Geffen Sotheby’s International Realty CEO Yael Geffen says the MPC’s decision to leave the repo rate unchanged was a welcome surprise given this week’s announcement that annual consumer price inflation leapt to 5.9% in October from 5.4% in September.

“Inflation is creeping perilously close to the top end of the Reserve Bank’s target band, so while this prime lending rate status quo is excellent news for consumers – especially ahead of the festive season – it shouldn’t be seen as a green light to go on spending sprees.

“Rates are still at 14-year highs and economists don’t see them coming down until at least March. Many predict repo rate relief will only come mid-year, or even as late as September 2024.

“People who get year-end bonuses should think about saving rather than spending, given the alarming debt statistics we face.

“Total outstanding household debt in South Africa in the second quarter of this year was a staggering R2.78 trillion, with mortgages accounting for around 46% of that load. To think that we as mothers, fathers, newlyweds and young home owners owe that much money in our personal capacities, is shocking and we can’t bury our heads in the sand.

“That doesn’t mean we shouldn’t enjoy the festive season; it just means being responsible about spending.”

Geffen says rate cuts next year will give renewed impetus to the property market and offer opportunities for more buyers to step onto the real estate ladder.

“Being approved for a R2 million bond doesn’t mean you should buy a R2m property, because you always need a financial cushion in case rates increase. Asking a property professional for advice on price bands and budgeting is a very good idea – especially if you’re a first-time buyer.”

Property24, News, Market News – “Repo Rate remains stable at 8.25%, bringing a sense of relief to homeowners” Web blog post. 23 Nov 2023