South Africa’s Property Stability: Realistic Pricing Key Amid Rate Hike

14 things to consider when buying a home or property on credit in 2021
  1. The recent 50 basis point interest rate hike by the South African Reserve Bank (SARB) has drawn attention to the property market, with experts suggesting that stability relies on sellers setting realistic property prices.
  2. Despite concerns over the rate hike’s impact on homeowners and small businesses, the property market outlook remains stable, favoring a buyer’s market with good value buying opportunities.
  3. Experts advise sellers to be realistic about pricing and focus on offering solid, long-term investments to attract buyers and close deals in the current economic climate.

The recent interest rate hike by the South African Reserve Bank (SARB) has drawn attention to the country’s property market, as experts weigh in on the potential implications of the increase. While the market is expected to remain stable for now, this stability is contingent upon sellers setting realistic prices for their properties.

On 30th March, the SARB raised interest rates by 50 basis points, a move that defied the market’s expectation of a more modest 25 basis point increase. Reserve Bank Governor Lesetja Kganyago justified the decision by citing the volatile nature of economic and financial conditions in the foreseeable future. Kganyago emphasized the importance of data-dependent monetary policy decisions and sensitivity to the balance of risks to the outlook.

Although property experts acknowledged the difficult decision faced by the SARB and the valid reasons for the hawkish hike, many believed that the rate increase was somewhat steep, particularly in light of the significant pressures on consumers in 2023. Professor Andre Roux, an economist at Stellenbosch Business School, explained that while the domestic inflation rate remains firmly above the target range of 3% to 6%, the SARB has a constitutional mandate to protect the value of the currency.

Considering South Africa’s precarious economic situation, which includes the prospect of a technical recession, double-digit food inflation, unusually high levels of unemployment, substantial personal debt burdens, and ongoing load-shedding, some leniency seems justified, Roux added. Numerous property experts concur with this sentiment, noting that the rate hike will exert pressure on homeowners and small businesses.

Greg Dart, the director of High Street Auctions, argued that while the private sector recognizes the Reserve Bank’s obligation to control inflation, the current plan is proving ineffective. Dart cited the soaring cost of living for most South Africans, the 14-year high in food price inflation, and the job losses resulting from load shedding and increasing manufacturing downtimes.

Yael Geffen, the CEO of Lew Geffen Sotheby’s International Realty, echoed Dart’s concerns, stating that homeowners are not receiving salary increases that can accommodate the hikes in monthly bond repayments, potentially forcing many to sell their homes. Geffen warned that the situation is unsustainable, with people facing the loss of their homes and livelihoods.

Nevertheless, the property market outlook remains stable as long as sellers price their properties realistically. Even after the unexpected rate hike, experts agree that conditions still favor a buyer’s market. Herschel Jawitz, the CEO of Jawitz Properties, anticipates property prices to increase by only 2.75% to 3.5% this year, meaning that in real terms, after inflation, property prices are declining by a similar amount.

Jawitz added that as long as inflation remains high amid low economic growth, real property price growth will be marginal, presenting good value buying opportunities for those with the means to purchase. Samuel Seeff, the Chairman of Seeff Property Group, concurred, highlighting that the rate is still below the historical average of the last 20-30 years, and the property market remains strong and stable.

Seeff also pointed to the continued favorable bank lending climate and the increased transfer duty exemption threshold to R1.1 million as positives for cash-strapped buyers. However, the market’s tilt in favor of the buyer makes it crucial for sellers to be realistic about pricing in the current climate. Geffen advises sellers to focus on offering solid, long-term investments to attract buyers and close deals.

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