March 29 2023
Samuel Seeff, chairman of the Seeff Property Group said on Wednesday that that the SA Reserve Bank (SARB) should keep the interest rate hike to a minimum 25 basis points and could perhaps even consider pausing the hike at this stage.
It’s optimistic thinking but Seeff has a point. The Bank will make its announcement on Thursday March 30.
Given the concerns around the Eskom energy crisis, further weakening in business confidence and news that the economy contracted by 1.3% in the last quarter of 2022, the economy clearly needs all the help it can get, he explains.
“That said, the property market is mindful of the challenges reflected in the renewed weakening of CPI inflation to 7% in February from 6.9% in January and pressure on the currency. We understand that the SARB might view a rate hike appropriate right now,” said Seeff.
“We do, however, hope that the SARB restricts it to 25 basis points which is expected and already factored in by the market. That would take the prime rate and base home loan rate to 11%. While not ideal, it would still be below the historic average of the last 20-30 years, and we are still seeing a strong, stable property market,” he said.
An 11% the interest rate would be at the same level that it was just after the 2008 Global Financial Crisis. In mid-2008 when the crisis peaked, exacerbated in SA by the introduction of the National Credit Act in 2007, the interest rate spiked to 15.5%.
Buyers and homeowners will now need to adjust to the higher interest rate which will affect their home loan repayments and other credit, and have a knock-on effect on the cost of living and disposable income. South Africans are already suffering.
While overall house sales volumes are down compared to the highs of 2021, many people in the market says it’s business as usual with buying and selling continuing daily. We are still seeing the overall monthly transfers in the market as being slightly above the pre-pandemic level.
The increased transfer duty exemption threshold to R1.1m is a positive for buyers. The higher interest rate is also mitigated to an extent by the continued favourable bank lending climate which is the best in over a decade and considerably better when compared to the post-2007/8 global financial crisis period.
The banks continue competing for business in the home loans market with deposit requirements generally still below 10% and approval rates still well above 80%.
House price appreciation continues to decline, and now stands at around 2% on average. While not great news for sellers, the flat growth of the last few years means we are unlikely to see prices plummet compared to other global markets which experienced runaway price growth during the Covid-19 boom.