Authors:  property24
23 May 2021

SARB holds interest rate at 7% | But will stock shortages swing the market?

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has decided to keep the repo rate at 3.5% and the prime lending rate at 7% after its third Monetary Policy Council meeting for 2021.

Lesetja Kganyago, SARB Governor announced during a press briefing on Thursday that “going forward, a stronger exchange rate, ongoing moderation in unit labour costs, and sustained economic slack are expected to offset higher electricity and food price inflation, keeping the headline inflation forecast relatively stable.”

While many expected the interest rate to be increased after the previous meeting in March, the Monetary Policy Committee (MPC) cut the country a break with it’s decisions to hold, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.

“This means that homeowners and first-time buyers continue to find themselves in a favourable position in terms of the interest rate charged on their home loan.

‘Stock shortage swinging the market’

Goslett explains that these low interest rates have made owning a home a reality for many more South Africans, as the first-time buyers’ market is still incredibly active.

“Owing to this increase in activity, we have already heard reports from some of our offices that there is a lack of stock available in their suburbs. It is possible that we are already beginning to see the swing from a buyer’s into a seller’s market, which means that we may soon start seeing prices begin their upward climb,” says Goslett.

Having said that, any increases in interest rates over the course of this year could hinder house price growth.

‘Inflationary pressures expected to pick up’

Dr Andrew Golding, chief executive of the Pam Golding Property group says the unchanged interest rate does however provide stability to the market and with the Reserve Bank Governor indicating it will maintain its current accommodative monetary policy stance to support the economic recovery as long as inflationary pressures remain contained.

Economists suggest the first hike could occur in late 2021 to rates remaining unchanged throughout next year (2022) with the first hike in early 2023.

“While the rand has strengthened since the previous MPC meeting in March – gaining 6% against the dollar, according to FNB, bringing it back to pre-pandemic levels – and with domestic inflation remaining comfortably within the Bank’s target range, there are concerns about the inflation outlook in the longer term.
“Inflation is expected to pick up in the next few months, rising above the mid-point of the target range, but still within the target range, as a result of base effects as well as higher administered prices, such as a double-digit increase in electricity prices, and soaring global commodity prices, which could trigger second-round inflationary pressures,” says Golding.

Residential property market remains active

Dr Golding adds, “Positively, while the impact of the aggressive interest rate cuts last year (2020) on the property market are gradually dissipating, the residential property market remains active, with the rate at which banks are lending to new homeowners continuing to improve. According to ooba, the average weighted concession below prime rate eased to -0.12% in April (2021), the best rate recorded since August 2020. This compares favourably to a rate of 0.2% above prime in May 2020 at the height of the global pandemic.

“Furthermore, the approval rate for pre-qualified buyers remains relatively stable at 89.1% in April, while the rate for non-qualified buyers has drifted lower to 77.2%, underlining the importance for buyers to take the time to pre-qualify prior to making offers to purchase.

“Both the Western Cape (+5.2%), which has now regained its position as the top performing regional housing market, and Gauteng (+4.9%) continued to rebound in April, while KwaZulu-Natal (+4.2%) – which initially led the recovery – lost some momentum. KZN continues to outperform relative to Gauteng in both the top (above R2 million) and lower (below R1 million) price bands, while Gauteng retains its lead relative to KZN n the mid-price band (R1 million – R2 million).”

Early signs of returning confidence?

While to date much of the updraft in the property market has been interest-rate induced, driven by first-time buyers, Seeff says overall volumes which is about 20,000 per month at best, remains well below what it should be for such a low interest rate.

“This is due to a large sector of the market not transacting to any notable degree for some time. This may, however, be about to change.”

Seeff says there are early signs that confidence could be returning to the upper end of the market. President Cyril Ramaphosa’s recent actions against corruption both in terms of his Zondo Commission testimony and demonstrable implementation of the ANC’s “step-aside rule” has been a confidence boost.

“We have recently seen more high value transactions and Seeff has achieved record-high sales months boosted by an increase in high value transactions, the most recent being sales of R45 million to R55 million and more in the pipeline.

Foreign and second home buyers are also investing again, not just on the Atlantic Seaboard but in the coastal towns such as Plettenberg Bay as well. SA expats also seem to be investing in property with the intention of returning to the country.
That said, Seeff remains of the view that the Reserve Bank should be taking a more aggressive stance to boost the economy. 2% Economic growth for the year is simply not enough for an emerging market. More needs to be done to foster a climate for investment, economic growth and job creation, he says.

‘SA property boom confined to lower price segments’

Globally, central banks have been far more aggressive with their rate cuts. The UK and USA are reporting booming real estate markets with up to 20 to 30 offers on a single property reported in the US. In SA, the local boom has only really been in the first-time buyer sector of the market.

Despite the rapid rise in the CPI to 4.4%, it remains within the Reserve Bank’s target range of 3 to 6 percent. The hike in inflation is also Pandemic-driven and not due to overspending by consumers because of a low interest rate. The currency continues to hold up well, recently rallying significantly against the US dollar and more than recovering the losses suffered since last year April.

Nonetheless, Seeff is very upbeat about the prospects for property for the year ahead. He says we could even start seeing the build up to a market-wide boom later this year.

“South Africa is still one of the best places to live and buy property in and conditions remain favourable for buyers, both from an interest rate and price growth perspective. Price growth has been confined mostly to the mid to low price bands.

“Stock levels remain well balanced but Seeff also expects stock shortages towards the latter part of the year.”

The following table shows the savings in interest since SARB began cutting interest rates in January 2020

January 2020 – Click here to check your bond affordability.

The original article can be viewed here: