Advice and Opinion

Flat repo rate commentary from local property heavyweights

Repo rate

The predicted decision was made earlier today by the Monetary Policy Committee as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would continue at 10% and the repo rate at 6.5%. The decision to keep interest rates unchanged at a time when a drop could have provided consumers with some much-needed relief was a cautious move by the MPC, who believes that inflation rate is still too close to the top end of the SARB’s 3.0%–6.0% target range for 2018.

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa commented:

Leading up to the announcement, it was predicted that interest rates would remain unchanged. However, many remained hopeful for a cut as, in comparison to the same period last year, inflation levels are lower this year to date. A cut at this time would have done well to stimulate our economy and help consumers who are struggling with the increasing fuel costs and general raised cost of living,”

The decision to keep interest rates at their current rate is not altogether surprising, though. The global economy is rather volatile at the moment and the Rand continues to be weak. Investor confidence has waned after the initial hike following Ramaphosa’s inauguration and fuel price hikes continue to put inflation levels under pressure,” Goslett adds.

As long as interest rates remain unchanged, consumers have the opportunity to continue paying off their debts at their original rates. Now is also the ideal time to enter the market and purchase property before interest rates on your home loan increases,” Goslett concludes.

Mike Greeff, CEO of Greeff Christies International Real Estate, said this should be seen as a positive sign.

The prime lending rate sets the tone for the property industry and suggests that the government is satisfied with the current trajectory of the economy and is adopting a ‘wait and see’ approach with regard to global economic factors“.

While an unchanged repo rate may not encourage spending it does not mean that individuals are incapable of investing in the property sector. With the correct attitude towards their finances and responsible credit management, there is no reason why individuals would not qualify for a bond or home finance as banks have eased conditions for granting bonds,” said Greeff.

The Seeff Property Group has welcomed the decision by the Reserve Bank’s Monetary Policy Committee to retain the repo rate at the current level of 6,50% (base home loan rate of 10%).

The decision was largely anticipated by the market given the better than expected consumer inflation figure of 4.6% for June (lower than the market expectation of 4.8%), despite the weaker exchange rate.

Although the currency fluctuation poses a risk of monetary policy tightening, analysts believe that while inflation remains within the 3%-6% target range, the Reserve Bank is likely to keep the interest rate flat for the rest of the year.

This decision is good news for consumers and property owners, especially those with mortgage bonds“, says Stuart Manning, CEO of the group. “Bear in mind that consumers have had to absorb a number of cost hikes, most notably the petrol price increases, so any interest rate saving, is a boon“.

Aside from the economic pressure, the political noise and policy uncertainty around land expropriation remains a concern for the market. It has made many buyers, especially at the top end of the market and those who do not have to buy right now, hesitant, both local and foreign buyers alike.

The risk of further cost hikes on the back of a weaker currency and petrol price hikes means that the economy is likely to remain sluggish throughout the year. Manning says this will leave us with an overall weaker property market although there are pockets of good growth in both turnover and prices.

The market is holding up well despite the economic challenges, and while slower, there is still price growth and plenty of reasons to buy. Many areas are seeing excellent trade with especially the lower to mid-market sectors being quite active“.

Manning says there is opportunity in every market. Any market is a scale and when one side goes down, the other goes up.

While downmarket conditions are often characterised by speculators looking for bargains, it also brings serious buyers, but of course you need to know the difference“, says Manning. Many sellers are still making good deals as they adapt to the changing conditions. They may not be seeing stellar profits, but they are still making money.

When the sales side of the property market scale tips and finances are under pressure, the rental side of the market tends to go up with more demand for rental property. Although rates are under pressure, the good news for landlords is that they can still fill their units/homes and at least continue earning returns.

Dr Andrew Golding, Chief Executive of the Pam Golding Property Group commented:

The tentative economic – and housing market – recovery which we have seen at the start of 2018 has suffered a temporary setback as a result of the increased tax burden and series of petrol price hikes, coupled with rising property rates and municipal tariffs such as electricity and water“.

Consumer confidence has been dented as household finances have had to adjust to reduced disposable income. Nonetheless, interest rates are relatively low and banks remain competitive and continue to show an appetite for lending, so any setback is likely to prove temporary. And according to the Pam Golding Residential Property Index, national house price inflation of 4.54% in June is up from 4.04% in January, marginally higher than the first six months of the year’s average house price inflation of 4.25%“.

With a younger generation eager to enter the property market and an up-and-coming segment of the market which has newfound wealth and a desire to invest in real estate, we hope to see a gradually improving housing market. With household finances under pressure and a young population, we have already seen the lower end of the housing market experience an uptick, particularly as the average price for first-time buyers is estimated by ooba at R939 000“.

Certainly, what we are seeing countrywide in relation to Pam Golding Properties’ sales, is that well-priced homes under approximately R2.5 million are selling well to a cross-section of buyers, including investors. Nationally, however, the emphasis is on homes being pegged at realistic, market-related prices. Also in regard to our sales nationally, for the calendar year to date we have recorded a slight increase in unit sales, albeit reflecting more activity in the middle to lower price bands, with the luxury market still ticking over steadily.”

Dr Golding says encouragingly, the housing market in the economic powerhouse of Gauteng is showing signs of recovery, particularly in the North and in Pretoria: “In the Johannesburg and Pretoria metros we are seeing an upward trend in sales across all price bands and even experiencing stock shortages in high demand areas. It is likely that the appeal the area holds for first-time buyers, namely affordability and the development of mixed-use properties, is ideally suited to the lifestyle of young professionals”.

Our offices in both the Durban and burgeoning North Coast regions of KwaZulu-Natal and the Eastern Cape coastal regions are upbeat regarding market activity, as born out by Lightstone statistics which reveal that the coastal metro housing markets – defined as being within 500m of the coastline – are continuing to outperform non-coastal markets. As a region KZN is also benefiting from home buyers relocating from upcountry and with its idyllic year-round climate, from a growing retirement market“.

While the Cape Town metro market is slowing, this was to be expected as activity here has run ahead of the prevailing economic conditions and it makes sense for the market to consolidate after several years of above average price growth. Certainly, the drought also impacted on the housing market and this is currently coupled with the fact that winter seasonal demand is traditionally slower in the Western Cape, but we believe these are temporary concerns“.

In the Boland and Overberg regions of the Cape, we are seeing people looking a little further out from the Cape Town Metro towards areas such as the Northern Suburbs, with its value-for-money homes, good schools and appealing environment. Homes in secure estates remain in demand, with buyers looking to enjoy the benefits of convenient, hassle-free living. As the year progresses towards spring and the final quarter, this is also a period when people look to make decisions regarding relocating before the new school season”.

Adds Dr Golding: “We expect the effect of the fuel price increases to further impact on consumers’ desire to reduce commutes and live as close to the workplace as possible, and with increasingly sophisticated digital technology and many employers offering flexible working hours, increasingly work from home”.

As a trend multi generational living is expected to gain further impetus in order to spread the burden of ever-increasing rates, taxes and municipal costs of water and electricity, while alternative forms of energy and water conservation and recycling have already become key imperatives for new and existing home owners“.

As in all market cycles there are always opportunities which arise and we are seeing increasing innovations in building homes, from water saving features and alternative forms of power such as solar to container homes and now even 3D printing of houses“.

With affordability an issue for many and bearing in mind the younger generation of aspirant home buyers, there is definitely an opportunity for developers in popular hubs and major centres to bring to market new, affordable stock particularly in the price band below R1.5 million, and we already note the beginnings of this trend as developers respond to the growing demand for sectional title properties“.

The price correction in the Cape also presents buying opportunities to capitalise on the current status quo and traditionally quieter period as this location, with all its lifestyle benefits as a world-class destination, remains as compelling as ever and those who wait too long may miss the boat altogether.”

*Commentary in no particular order.