No festive cheer as rate hikes again | What it means for property owners

The Monetary Policy Committee has yet again increased the repo rate by a further 75bps. This seventh consecutive hike in the repo rate, ticking up to 7% means that the prime interest rate rises to 10.5%.

Reserve Bank Governor Kganyago Lesetja, has warned that high inflation and weak economic growth continue to shape global conditions alongside monetary and fiscal policy responses. Growth in the United States is set to weaken, and remains low in China. Although energy constraints have eased somewhat in the Euro Area, recession risk is high. Read the full MPC statement here.

However, Dr. Andrew Golding, chief executive of the Pam Golding Property group says while October's inflation rate disappointed, edging up to 7.6% from 7.5% in September, business confidence showed surprising resilience in the final quarter of the year with a reading of 38, marginally below 39 in Q3 2022. While admittedly a slightly weaker reading, there were concerns that recent bouts of prolonged loadshedding might have caused a further sharp deterioration in business confidence.

Although both the wholesale and retail sectors' confidence fell sharply in Q4, this was largely offset by a rebound in residential building confidence. The positive upward trend in residential building activity bodes well for fourth quarter economic activity, as does increased capital spending, particularly on renewable energy projects, as well as a continued recovery in the hospitality industry amidst a rebound in international tourism.

'No festive cheer'

"A pause could have provided a vital reprieve for consumers and homeowners, leaving more disposable money in the economy as we head into the busy festive season for the retail and tourism sectors," says Seeff Property Group.

Nonetheless, Seeff says the SA market has remained healthy and generally outperformed world markets over the last few months. "Despite following world patterns, we have not experienced the dramatic highs and lows and consequent shocks. Our interest rate is still below the 20-year average whereas the US rates have tripled, resulting in drastic hikes in house payments."

"While transaction volumes have come down as the market corrected due to the interest rate hikes, we may still end the year slightly ahead of the 2019 pre-pandemic levels. Prices should hold fairly steady, and we are unlikely to see the dramatic price adjustments taking place in other markets," he says.

The biggest impact of the hikes have been on the lower price bands and first-time buyers. The upper price bands are generally less sensitive to rate hikes and more to the general economic conditions. The outlook for 2023 looks stable with the Western Cape likely to be the top performer, boosted by semigration and the return of international buyers. Inland areas may see more pressure on sales volumes and prices.

Due to the interest rate hike, home loan repayments over twenty years at the prime/base rate will increase by:

Want a clear picture of what you can and can't afford? Try Property24's list of affordability calculators and tools here. 

'Hiking cycle continues to put pressure on homeowners'

Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett says that these interest rate hikes are to be expected, especially considering the global trends that are emerging.

"The effects of these interest rate hikes only become evident a few months after consumers adjust to paying the higher debt instalments; but, we have already started seeing the signs that property market activity is shifting. Over the last two months, our digital marketing agency has noted a rise in rental related search terms and a decline in buying search terms, which points to a coming shift in the local housing market," he notes.

He advises real estate agents to start preparing themselves for leaner times. "Since COVID, we have had an abundance of buyers. This is likely to change now, so real estate professionals will need to build out their networks as much as they can before conditions change," he recommends.

'Still favourable lending for home buyers'

The banking sector is playing a meaningful role in underpinning residential property market activity as another notably positive development is the sharp improvement in ooba's average concession below prime, which at -0.54% in October, is the most competitive rate recorded since the final months of the 2008/09 recession.

Applications from first-time buyers also rebounded in October, comprising 50.7% of total applications (according to ooba), although this percentage is likely to continue to consolidate around the 50% mark amidst the higher interest rates and increased pressure on household finances.

And while 100% bond applications remained subdued at 56.7% of applications in October, the approval rate was buoyant at 84.7% - remaining above 84% for the third consecutive month and at a level last recorded in late-2021. All in all, after declining during the first half of 2022, approval rates (six-month moving average) have risen in recent months, with the overall trailing effective and first-time home buyers rising to 82.9% and 81.5% respectively in October, highlighting the still favourable lending conditions for buyers. (Source of stats: ooba)

Furthermore, against the backdrop of slower growth in house prices, the rebound in demand for investment or buy-to-let properties continues, led primarily by the Western Cape (ooba regional data).

Another interest rate increase may not be the holiday gift South Africans were hoping for, but property experts say 2022 wasn't all bad by any means.

'Silver linings for property in 2022'

Lenders are still eager to finance home loans. Buyer affordability has taken a knock over the last 12 months, with interest rates rising from 7.5% in January to 10.5% at the end of November

Property prices are growing - but not too fast for buyers. "Average growth figures have hovered around 3.5%," says Tony Clarke, MD of the Rawson Property Group. "There are, of course, pockets of property that have done better than some, but overall performance has been reassuringly stable."

Rental rates are stabilising - as are tenants. The rental market is also ending the year on a good note, with positive (if modest) escalation in three of its five price brackets. Tenant payment behaviour has also shown improvement - particularly in the mid- to upper-level rental brackets - with the R12 000 to R25 000 bracket experiencing its best ever good standing rate at 87%.

Year-end bonuses are on their way! Those lucky enough to have a year-end bonus incoming could add another property-related positive to their 2022 list. "By investing even a small amount of extra income into your bond, you can save tens of thousands of rand in the long-run," says Leonard Kondowe.

'Property outlook positive into 2023 despite rate hikes'

"We expect to head into 2023 on a fairly solid footing with a stable market, but with several sub-plots due to area and price band differences. The strongest market is likely to be the Western Cape, boosted by semigration and a return of international buyers. We may even see more Europeans looking to invest here given the challenges in their own economies," says Seeff.

"We have already seen a notable uptick in sales above the R10 million to R15 million mark for the first time since 2017 in the Cape. Prices are likely to hold firmly and may even push up. If there is a level of semigration to the KZN North Coast and certain Eastern Cape areas, we may also see it play out positively in terms of prices."

Other inland areas do not benefit from the added demand from semigration and international buyers and are likely to see lower turnover and pressure on asking prices. Those looking to semigrate from up north may potentially need to sell at a discount.

The lower price bands and first-time buyers have been most affected by the rate hikes. The market above R3 million is less sensitive to rate hikes, but more to economic conditions and business confidence. We are also seeing lots of new buyers coming into the market driven by the growing Middle Class, especially from previously disadvantaged demographic groups.

Generally, it remains a good market for buyers although they will need to factor in higher repayments and potentially higher deposit requirements on home loans. The bank lending landscape remains a positive for the market and there are still ample reasons to invest in your own home, says Seeff.