What buyers and sellers can expect from an interest rate hike in South Africa at this time
Seeff Properties’ chairman, Samuel Seeff, insists that the South African Reserve Bank (SARB) should proceed cautiously and keep the interest rate hike in South Africa to a minimum of 25 basis points. Seeff also hopes SARB will go as far as to pause the hike, given the current economic climate.
Seeff's opinions stem from concerns surrounding the Eskom energy crisis, failing business confidence, and the disturbing news that the economy contracted by a staggering 1.3% in the last quarter of 2022. While not ideal but still expected, 25 basis points would take the prime rate to 11% and keep it below the average of the last 20-30 years. This would be good news for the economy as a whole.
As for the property market, it is well aware of the country's current challenges, including the renewed weakening of the Consumer Price Index (CPI) inflation to 7% in February from 6.9% in January and the immense pressure on the currency. Despite this, Seeff understands that the SARB may view a rate hike as appropriate right now.
Nonetheless, buyers, sellers, and property professionals will feel the impact of an interest rate hike in South Africa.
The Impact of the Interest Rate Hike in South Africa on Buyers and Homeowners
The latest interest rate hike in South Africa leaves homeowners and buyers scrambling to adjust their budgets and brace for the financial impact. Home loan repayments and other credit are directly impacted, and the cost of living is set to soar, leaving disposable income feeling like a distant memory.
Despite the challenges, the property market soldiers on. Sales volumes may be down from 2021, but buying and selling continue unabated. While the market may be somewhat subdued, it remains steadfast.
There is additional good news amidst the chaos, however. The increased transfer duty exemption threshold, now set at R1.1 million, provides a glimmer of hope for buyers. And, despite the higher interest rates, banks are still offering favourable lending conditions, which are better now than they have been in over a decade. Deposit requirements also generally remain below 10%, with approval rates sitting comfortably above 80%.
The Impact of the Interest Rate Hike in South Africa on Sellers
Sellers will be pleased to hear that current financial distress in the property market is not seeing a noteworthy spike. In fact, it's quite the opposite. First National Bank (FNB), for instance, recently reported that most people are selling their properties due to semigration as they seek a better service delivery and greater quality of life, rather than for financial-related issues.
However, sellers must note that price appreciation continues to decline, currently standing at a mere 2% on average.
While this may seem like a setback for sellers, the silver lining is that the flat growth of the last few years indicates that we are unlikely to experience a catastrophic drop in property prices as some global markets did during the COVID-19 boom.
Seeff reports that the property market remains steady, while activity does vary from region to region. Overall, buyers are more selective, and it is imperative that sellers set realistic asking prices to correspond with the property market’s changing conditions.
Through all of this, Seeff remains perfectly positioned to guide buyers and sellers alike through the process of selling or buying in South Africa today. Get in touch with our Property Practitioners for advice.
Let us help you sell your property or find the perfect home for a fresh start.
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