Did you know that the South African Reserve Bank's 30% cut in the interest rate during the COVID-19 pandemic enabled the property market to achieve high sales activity? This was fantastic news for buyers and sellers in 2020, but the tide has turned as high inflation, and rising interest rates become today’s reality.
Both inflation and interest rates significantly impact the property market, and buyers and sellers can’t afford to turn a blind eye to them. Samuel Seeff, chairman of the Seeff Property Group, states: ”The interest rate has had the biggest impact on the property market over the last 30 months to the benefit of both buyers and sellers.”
High-interest rates increase the cost of home loan repayments, a painful additional cost for both existing homeowners and new buyers entering the market. For sellers, high-interest rates lead to lower demand and fewer interested buyers. In this case, sellers might have to reassess their asking prices and settle for less than they hoped to achieve.
Seeff recommends that sellers consult an experienced Property Practitioner for guidance on setting a realistic price for their property to ensure they do sell the property.
Inflation is the rate at which prices of goods and services increase. This includes the cost of petrol, electricity, and food. On the other hand, the interest rate is set by the Reserve Bank’s Monetary Policy Committee. They meet every second month - unless an economic crisis brings them together sooner to adjust the interest rate as they see fit.
If you’re wondering how the Bank determines the interest rate, the answer involves two key indicators: the inflation rate and the performance of the Rand against international currencies such as the Euro, Pound Sterling, and the United States Dollar. The Bank aims to keep the inflation rate between 3% and 6%. In 2021, the inflation rate averaged 4.6% and increased rapidly due to external pressures; the oil price, imported food prices, and the Russian War in Ukraine have all played a role in the rising inflation rate. In July 2022, inflation hit 7.8%, while August saw a minor decrease to 7.6%.
With the inflation rate rising, the Reserve Bank responded with a 75 basis point hike in July and then again in September. Unfortunately, Seeff predicts another hike will follow when the Bank meets again in November.
For more information on the topical subject of interest rates, read Seeff’s blog on how interest rates are damaging buyer confidence. If you’re in the mood for some good news, you might be interested in how the commercial property market is recovering thanks to declining vacancies.