Interest Rate Hikes Result in Belt-Tightening and Damaged Buyer Confidence

    Samual Seeff comments on how the recent interest rate hikes affected buyer confidence in the property market

    Buyers and homeowners can expect an increase in belt-tightening as the interest rate experiences the sixth successive hike this year; with the South African Reserve Bank hiking the rep rate by a further 75 bps to reach 6.25% and the base home loan rate to roughly 9.75%.

    The recent interest rate hike significantly affected the prime rate of a home loan over twenty years; the new bond prices reflected as follows:

    - R750,000 bond – extra R366 (repayment increase from R6,748 to R7,114)

    - R900,000 bond – extra R439 (repayment increase from R8,098 to R8,537)

    - R1,000,000 bond – extra R488 (repayment increase from R8,997 to R9,485)

    - R1,500,000 bond – extra R732 (repayment increase from R13,496 to R14,228)

    - R2,000,000 bond – extra R975 (repayment increase from R17,995 to R18,970)

    - R2,500,000 bond – extra R1,220 (repayment increase from R22,493 to R23,713)

    "This returns the interest rate to pre-pandemic levels, and while the market anticipated these further increases, stability is now a vital requirement for the economy and property market to remain lucrative", urges Samuel Seeff, chairman of the Seeff Property Group.

    "We'd much preferred a 50 bps hike; however, we expected a 75 bps hike, which is still preferable to something like a 100 bps hike; that would have been overkill and unprecedented under the present market. The bank needs to signal when the hiking cycle will end so we can better prepare for the rates to normalise again," Seeff adds.

    While these current conditions resulted in favourable oil prices, inflation remains above the South African Reserve Bank's target range despite dropping from 7.8% in July to 7.6% in August. The bank would also look to protect the value of the South African Rand from further deterioration against the Dollar in the coming weeks.

    Banks Will Struggle to Return Stability to the Economy

    The South African Reserve Bank now faces an impossible challenge in the balancing act they must perform to try and return stability to the economy and the property market. Seeff insists that the economy requires a significant kickstart, with favourable interest rates as the catalyst.

    Another trend caused by interest rate hikes is the emergence of a two-paced market, where the demand remains high, but buyer hesitancy is growing in light of property deals taking far longer to reach a close.

    Besides the damage done by spiking interest rates, Seeff believes that South Africa's deteriorating conditions negatively contribute to the economic situation. The prevalent power outages, dismal financial data and significant world events like the Ukraine crisis all compound buyer hesitancy.

    In light of this, despite the solid first few months and an unsurprising slowdown during winter, we have not witnessed any increase in September, which is usually the turnaround month with the onset of summer approaching. Seeff urges that we monitor the situation closely over the next few months to confirm whether a downward trend is on the horizon.

    The Market Remains Balanced Despite Challenges

    Seeff reassures sellers that while this marginal slowdown is understandable, the market remains balanced and retains pre-pandemic level performance; therefore, it remains an excellent time to sell. You can still attract buyers provided your location and price are enticing enough; if the offer is right, rather sell than wait for a better price.

    The price boom reached its peak and is now essentially over, with price growth continuing to decline steadily. Seeff cautions sellers against holding out for higher prices, and buyers must also adjust to the increased interest rate.

    The upside of this increase is that it provides more room for aggressive price negotiation, and the deteriorating buying conditions will funnel more people into the rental market. Seeff states that the stock shortages in certain areas could give rise to rental rates and revive the rental market, which remained flat over the past two years.

    couple deciding on which house to buy

    So despite the market’s challenges, now is still an excellent time to buy and sell.

    At Seeff, home is our story; let us be a part of your story by contacting one of our expert property practitioners to help you take that exciting first step. 

    If you enjoyed reading this blog, perhaps consider reading Seeff’s blog on a guide to the South African property market amid economic pressures and climbing interest rates to find out more.

    Author: Seeff Property Group
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