22 July 2021
SARB holds rate steady, warns of upcoming hikes
South African Reserve Bank Governor Kganyago Lesetja confirmed the Monetary Policy Committee (MPC) has decided to hold the repo rate at 3.5%.
Leseja says that despite higher inflationary risks created by the impact of the recent unrest across parts of SA, together with the global impact of the Covid-19 Pandemic, SARB remains confident that its policies will do enough to contain it within the 4 to 6% inflationary range.
The Governor did however warn that SARB’s implied policy would see an increase of 25 basis points in the fourth quarter of 2021 and in each quarter of 2022.
Lesetja says, “The risks to the medium-term domestic growth outlook are assessed to be balanced.”
“GDP in 2021Q1 grew by 4.6%, much stronger than the 2.7% expected at the time of our May meeting. That outcome reflected better sectoral growth performances and robust terms of trade in 2021H1. Commodity prices have remained high, sustaining income gains despite higher oil prices.
“Headline CPI forecast has been revised higher for 2021 to 4.3% (from 4.2%), lower to 4.2% in 2022 (From: 4.4%) and unchanged at 4.5% in 2023. The core inflation forecast for 2021 is slightly lower at 2.9% (from 3.0%), 3.7% in 2022 (from 4.0%) and unchanged in 2023 at 4.3%.”
Property industry leaders believe the decision to hold the rate has provided much needed stability, but most acknowledge that SARB could have added a better buffer to the current hardships of South Africans with a rate cut.
According to Samuel Seeff, chairperson of the Seeff Property Group, there was ample reason for the SARB to have stepped in to provide further relief and stimulus, especially given recent events in KZN and Gauteng which will further delay economic recovery.
“We simply cannot continue seeing this passivity while the economy remains undermined.” He says that the damage caused by the looting further exacerbates the challenges which prevail until the economy is fully opened and functional across all spheres. Aside from boosting economic activity and providing debt relief, the interest rate has been the main driver of the positive activity in the property market over the last year which has sustained despite the second and third Covid-19 waves.”
Dr Andrew Golding, chief executive of the Pam Golding Property group agrees that given the vulnerability of South Africa’s economy in the wake of last week’s unrest, a reduction in the repo rate would have provided some relief to individuals and businesses impacted not only by the effects of the lockdown and recent events, but also the increases in fuel and electricity costs and other utility tariffs.”
Similarly, Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says that the decision to hold the rate steady was a prudent decision, and far better than an increase, considering the “consequences for homeowners who are already being pinched by the political unrest and harsher lockdown restrictions during the third wave”.
“As long as the economy remains under this level of pressure, it makes sense for the SARB to support investment through accommodative interest rates,” says Tony Clarke, MD of the Rawson Property Group. “It’s possible that inflation could trigger an interest rate increase in the near future, but realistically, I don’t see this happening before the middle of next year.”
For the South African property market, this means the exceptional buying conditions experienced over the last year will likely be staying put for some time.
As for sellers, Clarke says competition is high, but favourable sales are still happening – as long as properties are priced and marketed strategically.
Market remains active, cyclical tapering
Golding says, encouragingly, as things generally settle down, and despite the more stringent lockdown regulations currently in place, they are seeing a continuance of activity for correctly priced homes across the various price bands, depending on the location and market demand.
“The resilience of South Africa’s residential property market continues to be illustrated in Gauteng, where activity remains robust. Undoubtedly, the Covid-19 third wave created an increasingly challenging trading environment, further exacerbated by the past week’s events, however, the market continues to respond well, especially to properties that are correctly priced – a trend evident across suburbs as well as in estates.
“In June (2021) we concluded a number of notable sales in the Johannesburg area, ending the month significantly ahead of a challenging budget. Furthermore, despite a slow start in July, we are seeing an increase in both enquiries and activity – including the sale of properties above the R10 million mark and across the various areas. This includes an offer to purchase a R17.5 million home in Bedfordview. In addition, what is positive to note is a general increase in enquiries for rental properties in this region.”
While there are reports that activity has tapered down in the second quarter, Seeff says it is likely cyclical due to winter and people restricting their movements in view of the third wave rather than an indication that the market has reached a point of equilibrium.
He highlights that while property transactions remain above pre-pandemic levels, the current monthly average of around 20,000 is still about 25% below what would constitute normal market conditions when compared to the last twenty-odd years and about 50% below the 2005-2007 boom period.
Our branches continue reporting sustained activity. This is borne out by bank reports that mortgage granting continues at an accelerated pace and deposit requirements are the lowest since the introduction of the National Credit Act. The increase in higher value bonds further reflects that sellers are buying up.
We have also seen some confidence returning to the super luxury market with almost R1 billion in sales on the Atlantic Seaboard just in the price band above R20 million, the highest in three years, equating to about 5 high value sales per month compared to 2-3 in the prior three years.
Stock shortages in certain areas
While we are seeing some stock shortages in certain areas and high demand price bands, Seeff reiterates that conditions continue to largely favour buyers. Stock levels remain adequate and although well-priced property can sell within 8-10 weeks, most sellers still need to cut their price expectations.
Although too soon to tell whether the protests will dampen local property markets, Seeff says government needs to step up vaccination and create conditions to return to economic growth and job creation. The SARB should contain, or preferably cut the interest rate to provide further stimulus.
Start budgeting for hikes towards end of 2021
Homeowners are still cautioned to leave room in their budget for potential interest rate increases when planning for the year ahead.
Goslett says, “Though times are tough, homeowners ought to prioritise their home loan instalments to avoid facing the risk of losing their home. Before things get too tough, speak to your financial institution. Some homeowners might be under the impression that the bank will repossess their property as soon as they communicate their distress. However, this is not the case. There a few ways that the bank might help, such as rescheduling the debt, offering some advice on the right steps to take, or renegotiating the term of the loan from 20 years to 30 years.
“As a final option, they might recommend placing the home on their distressed sales list to help the homeowners get out of debt. The homeowners can then use this money to purchase a home they can afford,” Goslett explains.
“The property market works in cycles. As economic and political situations stabilize, so too will the demand for real estate, which will drive up property values. Those who hope to time the market to maximise their returns should seek the advice of an experienced real estate professional who can keep them up-to-date on trends and the latest market conditions.”
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