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Cape Town - From the end of 2013 - just before the start of interest rate hiking cycle - to June this year the cumulative increase in the bond instalment on the average priced home has increased by 42.1%.
This is according to John Loos, household and property sector strategist at FNB, in reaction to the SA Reserve Bank's Monetary Policy Committee's (MPC's) decision on Thursday to keep the repo rate unchanged at 7%.
Loos said the Sarb’s current monetary stance was appropriate from a housing market stability perspective, and that a rate hike was not necessary at this stage.
The average prevailing lending rates - marginally above prime rate of 10.5% - are significantly higher than single-digit average house price growth in most parts of South Africa, keeping the market largely away from “over-exuberance and large scale speculation", he commented.
He noted that on a R1m bond at prime rate, the rand value of the monthly instalment had increased by R1 306 from the beginning of 2014 (when the prime rate was 8.5%) to the present day at a prime rate of 10.5%.
"For those buying an average priced home as at June 2016 (according to the FNB House Price Index estimate of average price), the year-on-year rate of increase in bond instalment compared to those buying in June a year ago was 14.4%, taking into account both the bond instalment increase as well as the average house price inflation," said Loos.
Seeff chair Samuel Seeff said the MPC's move to keep rates stable at 7% for the second successive meeting, was the right decision for the economy and property market.
An upward rate adjustment would have added to the already negative economic sentiment and would most certainly have served as a dampener on the economy and property market, he said.
"While the property market remains on a fairly even keel compared to last year, the energy has been taken out of the market, save for the Western Cape that is still benefiting from 'semigration'."
This is not to say that the market was dead, he said, adding there were still plenty of buyers and, while well-priced properties were still attracting good interest, sellers needed to be mindful of the market forces and slower price growth.
Rising consumer costs
Dr Andrew Golding, CE of the Pam Golding Property Group said the MPC’s decision was a welcome relief for cash-strapped homeowners with mortgages and who were already saddled rising consumer costs.
He said despite economic pressures, South Africa’s housing market continued to reflect an ongoing demand for homes to buy and rent, with stock shortages still evident in sought after hubs and growth nodes.
He reckoned there was no doubt that an increasing focus on smaller, more affordable and conveniently located residential accommodation would continue to fuel the demand for sectional title living, whether for investment, primary residential use or to rent. It was also likely that new homeowners would remain a dominant force in the national housing market in general, and in the lower-price band below R1m in particular, for the foreseeable future.
Bruce Swain, managing director of Leapfrog Property Group, pointed out that it had been a tough year for homeowners as the repo rate had increased twice in 2016, while municipal rates, electricity and food prices had also gone up.
“While we agree with economists that the MPC will likely hike the rate once more this year as it continues to attempt to curb inflation, it is my opinion that even a further increase of 25 basis points later this year will further impact on affordability, placing more strain on homeowners battling to keep up with rising costs”, said Swain.
“It would be beneficial to both the economy in general, and to consumers in particular for the Sarb to delay any further hikes this year.”
According to Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, affordability was already an issue for many consumers seeking to buy property, but didn’t meet the necessary qualifying criteria.
"An interest rate hike will further widen the gap between homeownership dreams and reality,” said Goslett.
He noted that during the first half of this year demand for property had dampened as many buyers adopted a wait-and-see approach As a result the dynamics of the property market were slowly beginning to shift, with more homes entering the market and the pool of potential buyers decreasing.
"This weighs in buyers’ favour, with sellers having to become more competitive with their prices."
