July 19 2023
Numerous estate agencies believe that given the country’s high interest rate environment, the Reserve Bank should leave the repo rate unchanged, following the Monetary Policy Committee (MPC) meeting this week. The repo rate or repurchase rate is the rate at which the Reserve Bank lends money to private banks.
The MPC will announce its interest rate decision on Thursday July 20.
Samuel Seeff, chairman of the Seeff Property Group said that the Bank’s hiking cycle needs to stop.
“The interest rate is too high. It is stymieing economic growth and driving unemployment and higher debt levels, and it is now enough,” he said.
The Bank’s governor, Lesetja Kganyago has signalled that a 25-basis point hike may be necessary to curb inflation, but agencies want the Bank to hold off and keep the repo rate unchanged at 8.25%. Higher interest rates make it more difficult for people to afford financing housing purchases.
Seeff said the burden on consumers, homeowners and buyers was becoming unbearable.
“On top of electricity and other hikes, they have already had to absorb 475bps in rate hikes and are being punished when current inflation is not due to domestic spending, but is largely imported,” he said.
Inflation has actually come down and hit an unexpected 13-month low of 6.3% in May 2023 while the Rand-Dollar rate stabilised more post SA’s confusing diplomatic actions involving Russia.
“In reality, the higher interest rates have done more harm than good,” said Seeff.
He says the high rates exacerbated the weak economy.
“The SARB should now start looking at bringing the rate down. Economists such as Professor Chris Malikane from Wits also recently spoke against another rate hike stating that SA’s important economic block, the middle class, is facing too much pressure,” said Seeff.
“Property sales volumes are down as the market reflects the interest rate hikes. Even the Cape market, which has been strong, is seeing a decline in sales volumes as fewer buyers are now active. The burden is now simply too high for consumers and home buyers,” he said.
The market is especially challenging for sellers and first-time buyers. Sellers now need to price accurately as buyers are able to dictate prices.
Eventually, interest rates will come down again.
“Prices are flat and the banks are still lending, albeit that buyers will have to budget for the higher rate right now. He says staking your claim in the property market right now could very well stand you in good stead,” said Seeff.
Meanwhile, Herschel Jawitz, CEO of Jawitz Properties said South African consumers were “waiting with bated breath” to see what the Bank decides about interest rates.
There is still a real possibility that the SARB will continue with its rate-hiking cycle, he said.
Interest rates came off a historic low of 7% in July 2020, rising 4.75% to the current 11.75% in the steepest phase of monetary tightening since 2006. This was in line with international trends, where rates increased by similar amounts.
“Notwithstanding the increased pressure on consumers, the Reserve Bank needs to bring inflation back into its target range of 3-6%. Given the many challenges South Africa faces at the moment, consistency in policy implementation from the Reserve Bank is critical from an international investment perspective. The residential market was holding up reasonably well until the last rate increase of 50 basis points in March this year. Since then, we have started to see more stress in the market from homeowners and a drop in demand, especially from first-time buyers, who are opting to rent at current interest rates,” said Jawitz.