After a challenging year for the property market the decision by the Reserve Bank’s Monetary Policy Committee to retain the repo rate unchanged at 6.5% and the mortgage rate at 10% is disappointing as we head into the festive season, says Samuel Seeff, chairman of the Seeff Property Group
The news that inflation had dipped to a nine-year low of 3.7% (from 4.1% in September) along with a reasonably stable currency should have been enough to motivate a rate cut. The economy and consumers can do with some good news and it would have been a welcome boost as we head into the important retail season, he says.
Re/Max says this unchanged repo rate follows from a period of wins and losses for the South African economy. CPI slowed to 4,1% in September from 4,3% in August. However, Moody’s also gave South Africa a negative outlook for its investment grading and lowered its economic growth outlook for the country from 1.5% to 1% for 2020.
Mike Greeff, CEO of Greeff Christies International Real Estate however believes the MPC decision (to leave the prime lending rate unchanged) is,”… an encouraging sign. It means that the committee does not intend to make waves in the economy ahead of the busiest retail period of the year. “
He add: “The steady interest rates also mean that potential property buyers are better able to budget and plan for the year ahead. While lenders are using very strict criteria to assess loan applications, it is still quite possible for applicants to achieve a favourable outcome. The unchanged repo rate paired with the decrease in the fuel price should result in consumers not being stretched too thin financially over the holiday period. Direct and indirect foreign investors will also be able to invest with more certainty knowing that the exchange rate will not experience drastic, unexpected fluctuations. ...”
Seeff says there has been plenty of activity in the market this year despite a negative sentiment , but largely at the lower price bands. This year has been the tale of two markets - the busy low to mid-market to R1.8m (R3m in some areas) boosted by the favourable mortgage lending climate at the one end of the spectrum and the upper-end R10 million-plus market where little to no activity is taking place.
The upside to the current conditions, is that it is one of the best times to buy and Seeff expects this to remain the case during the early part of 2020. The interest rate is at the lowest level in years and the flat price growth means that there is a good window of opportunity for buyers.
While anticipating an increase in the number of transactions, Seeff says that the tale of two markets will likely continue with activity concentrated below R1.8m, supported by the low borrowing costs and favourable mortgage lending conditions.
2020 will start off with a market which remains oversupplied in most areas. Price growth is expected to remain flat in the 4% range at best and sellers will need to keep their asking prices market-related or risk not attracting buyer interest.
According to Regional Director and CEO of Re/Max of Southern Africa, Adrian Goslett, the MPC acted “in such a way as to contain inflation against a backdrop of potential threats, such as the volatility of the exchange rate and the ongoing instability of SEOs such as Eskom”.
That being said, Goslett remains hopeful that the South African market will strengthen over time and prove itself to be “a worthy investment market”.
“The South African real estate market still offers great value, especially for foreign buyers. Currently, many suburbs within South Africa are experiencing negative house price growth in real terms. But, market conditions are set to improve in the medium- to long-term, which means that those who purchase property as a long-term investment now stand to see good returns when it later becomes time to sell,” he explains.
Consequently, Goslett encourage South Africans to make the most of the sturdy interest rate by entering the market before house prices fully recover.
Dr Andrew Golding, chief executive of the Pam Golding Property group, says: “We believe there was room for a further rate cut particularly as inflation appears to have been reigned in to some extent. Even a modest reduction in the key lending rate, on the back of the previous interest rate cut in July (2019), would have been widely welcomed by consumers - including aspirant home buyers, and would provide some relief to existing home owners with mortgage debt.
“Positive factors in the housing market are that consumers – particularly in the lower price bands and including first-time buyers, continue to demonstrate a sound appetite for home buying while financial institutions are not only willing, but also increasingly competitive, in lending finance.”
Golding says key criteria for successfully concluded sales remain accurate pricing coupled with prime location – notably major and ‘second tier’ metros and key hubs close to the workplace and which provide access to infrastructure and amenities such as schools, shops and medical facilities, as well as perceived value for money.
“New developments, both residential and mixed-use, continue to be brought to market in high demand areas, which indicates developers’ ongoing confidence in our consistently resilient residential property market.
“With house price growth having levelled off, this remains a market where buyers are in many instances spoilt for choice, making it an opportune time for those sitting on the fence to commit to savvy purchase decisions before the market, being cyclical, embarks on the next upward trajectory.
“Hopefully we can anticipate stronger economic growth in 2020 which will help alleviate pressure on public finances and the private sector in general, as well as provide a fillip for the housing market.”