The latest rate hike by the South African Reserve Bank (SARB) created a stir among property experts, and the market is now expected to dampen for the remainder of the year – but there still may be opportunities for some.

On Thursday (25 May), the SARB decided to hike interest rates by 50 basis points, which mostly aligned with market expectations.

According to Reserve Bank governor Lesetja Kganyago, the move to hike rates comes amid persistently high consumer price inflation and a sluggish economy – exacerbated by severe load shedding.

This recent hike marks the tenth-rate hike since the current hike cycle started in November 2021, totalling 475 basis points over the period. Rates remain at their highest point in 13 years since the fallout from the global financial crisis weighed on the local currency.

Several property experts have responded to the hike citing concerns that consumers are already under immense financial pressures – adding further strain to South Africans’ ability to service their home loans.

Chairman of Seeff Property Group, Samuel Seeff, said there was good reason for the bank to take a more dovish stance given the current economic climate. Still, it has been described as “a massive killjoy” for the struggling economy, mainly because of the fallout from the Eskom energy crisis, and the market needs positive news.

“Another 50 basis points is a huge burden for consumers and homebuyers, and the direct effect on homeowners and buyers is that the cost of borrowing has risen drastically over the last two years,” said Seeff.

Lew Geffen Sotheby’s International Realty CEO, Yael Geffen, agreed with this sentiment and said, “South Africa is battling 14-year food inflation highs, our already abysmal employment stats have dropped further, and real household income is down”.

“Since November 2021 – a period of just 18 months – homeowners with fairly modest R2 million bonds have been slammed with increases of more than R6,000,” she said.

Given the current economic predicament, she added that a rate hike was inevitable, but 25 basis points would have been far kinder to consumers. “The situation is untenable, and people are going to lose their homes and livelihoods,” she said.

Property market outlook

Given the current economic pressures, many experts believe the 50 basis points hike will put greater pressure on the property market that’s unlikely to ease for the remainder of the year.

Seeff said the rapidly rising borrowing cost had dampened the market. First-time homebuyers, many from the emerging middle class, face affordability challenges, and overall sales volumes have declined.

This was evident in FNB’s latest property barometer for April 2023, which reported that market activity continues to decline due to high borrowing costs and weakening consumer fundamentals.

However, there is some room for things to get better.

Greg Dart, Director at specialist property auctioneers High Street Auctions, said if we see an end to rate hikes in the first quarter of 2024, the market will pick up and, in likelihood, gain greater momentum as the year progresses.

Additionally, the experts noted a silver lining for homebuyers who still have room to adjust.

Although Tyson Properties CEO Nick Pearson is sensitive to the fact that potential homebuyers are under immense pressure, with household disposable income shrinking almost monthly, he remains optimistic that a lot of good could come from this latest adjustment.

Describing the local property market as one that’s been at an impasse for some time with sellers pricing their properties at between 10% and 20% above the amounts that most buyers are prepared to pay and properties remaining on the market for longer than they should, Pearson said this latest interest rate hike could be the reality check that South Africa’s residential property market needs.

“Closing the gap between buyers and sellers could even inspire more transactions further down the line. It always does. The market may dip for a month or two, but as more and more people are prepared to sell their houses at more realistic prices, the market will become active again,” he said.

“If you purchase at current rates, and you can afford it, you will have more disposable income when interest rates drop – and while the rate hike will impact bond repayments, the good news is that this is likely to be the last increase for a while,” added the CEO of BetterBond Coetzee.

Seeff noted that the rate is still below the average of 15% to 16%. It is also encouraging for the market that we are still seeing the best lending conditions since 2007, with strong support from the banks.

“Approval rates are still at over 80%, deposit requirements are still at around 8%-10%, and buyers can often find a rate concession,” he said.

“If you’re taking strain, work with your bank on solutions to keep your home. Financial institutions don’t want your home, and they’d rather help you keep it than go through the extensive legal process the results from a default,” said Geffen.

“On the other hand, buy now if you have cash in the bank. You’re going to find remarkable properties available at the moment, and sellers are generally more willing to negotiate,” she added.

For sellers, Seeff said house price growth has stalled, given the rate hikes, which means they must ensure they price correctly if they want to sell right now.