Blow for homeowners as interest rate remains unchanged

In a move that has left the property market and wider economy strained, the South African Reserve Bank’s monetary policy committee (MPC) has once again decided to keep the repo rate steady at 8.25%, with the prime lending rate remaining at 11.75%. File picture

In a move that has left the property market and wider economy strained, the South African Reserve Bank’s monetary policy committee (MPC) has once again decided to keep the repo rate steady at 8.25%, with the prime lending rate remaining at 11.75%. File picture

Published Jul 19, 2024

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Cape Town - In a move that has left the property market and wider economy strained, the South African Reserve Bank’s monetary policy committee (MPC) has once again decided to keep the repo rate steady at 8.25%, with the prime lending rate remaining at 11.75%.

This decision marks the seventh consecutive meeting where rates have remained unchanged despite growing calls for a cut to stimulate economic activity.

And the hardest hit by unchanged rates in the property world remain first-time homebuyers – many of whom just can’t get a foot in the property market door because of the high interest on home loans.

This difficulty for first-time homebuyers is highlighted in ooba statistics that show first-time buyer applications hitting a seven-year low, dropping to 44.3% in June, said Dr Andrew Golding, chief executive of the Pam Golding Property Group.

However, there is an inkling of hope that there may be at least one or two rate cuts before the end of the year. Samuel Seeff, chairperson of the Seeff Property Group, expressed “deep disappointment” with the MPC’s decision, highlighting its detrimental effects on homeowners and the broader economy.

“The decision is out of step with the economic needs of the country and perhaps a little tone-deaf to the plight of consumers and homeowners.”

In some instances, he said, elevated interest rates have meant that middle-class homeowners have been paying up to R1 500 to R3 000 a month more on their home loans on top of other above-average credit and living cost hikes.

The burden on consumers and the economy is “too high”, he said.

Seeff further criticised the stagnant interest rate, which has remained unchanged for over a year and is higher than levels seen after the 2007/8 Global Financial Crisis, saying it has significantly eroded property market values by about 25%, with price growth stalling to below 1%.

First-time buyers, he agreed, are in particular finding it increasingly difficult to afford homes, and those with existing home loans are falling into arrears at alarming rates, contributing to a rise in distressed properties. Golding echoed Seeff’s concerns. He added that the property market’s sluggishness is reflected in extended average listing times, with homes in South Africa’s major metro markets now spending an average of 92 days on the market, up from 69 days in 2015.

Financial pressures are also leading to increased downscaling, with many homeowners selling due to financial strain.

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, offered a glimmer of hope.

“Growth within the property market will remain muted until the rate cuts materialise, which many economists predict might occur in September or November this year,” he said.

Despite the challenging market conditions, he said RE/MAX SA has seen a slight increase in sales activity, suggesting some resilience within the market.

Herschel Jawitz, CEO of Jawitz Properties, believes the SARB lost an opportunity to show “some foresight and courage with regards to interest rates”.

Despite these challenges, some optimism remains in the market.

“The interest rate outlook still looks positive for a rate cut later this year,“said Jawitz.

Golding said local inflationary pressures have been improving, and the likelihood of a US rate decrease could provide further impetus for the MPC to consider cuts in the near future.

Seeff said: “The market remains positive that an interest rate cut must now come soon.”

He believes buyers should take advantage of flat prices in anticipation of future rate cuts.

“Investing now means buyers can benefit from the savings once the rate comes down. Additionally, when the market rebounds, it will likely result in higher property prices and value appreciation for those who have bought now.”

Meanwhile, South Africa’s opening of Parliament last night “had investors and property professionals alike looking forward to a period of greater stability and stronger housing and rental prices”, said PayProp.

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Cape Argus

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