The inflation spike is temporary while the impact of the higher interest rate on the economy and property market has been more prolonged.
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Despite an improvement in market activity, overall property transaction volumes remain about 18% below what they should be.
“In 2021, when the interest rate was around 7.25%, the market averaged around 22,000 monthly registered transactions; this is now down to 18,000 five years later, says Samuel Seeff, chairman of the Seeff Property Group.
He adds that this is not good for either the property market directly, or the economy indirectly.
“The high interest rate over the last five years also continues to directly impact the ability of first-time homebuyers to enter the housing market.
"Market data shows that 25% fewer young people (aged 26-35) are purchasing property now while the average age has increased to 36-years, he adds. “First-time buyers as a percentage of home loan applications are also down by a notable 10% (from 56 to 46%).”
According to Seeff, all of this highlights the critical need for the Reserve Bank to do everything possible to hold the rate steady, and to restore affordability and market confidence as soon as possible.
The property group said that despite speculation that the South African Reserve Bank (SARB) will raise the interest rates later this week, it is urging the central bank to keep the repo rate unchanged.
The repo rate currently stands at 7.00%, and prime at 10.50% after the May increase of 25 bps, Seeff says.
He says despite volatility in the oil price as a result of recent renewed tensions in the Middle East, the current average price is still about 15-18% lower than the May average when the bank raised the interest rate.
“This gives room to pause. Even with inflation expected to rise to around 4.7% for June, the projected average for the year is still at just below the Bank’s upper target range of 4%, leaving room for the bank to take a more considered approach.”
The chairman reiterates that the inflation spike is temporary, while the impact of the higher interest rate on the economy and property market has been more prolonged.
The restrictive monetary policy has contributed to the economic stagnation, with the economy largely stuck in a low-growth pattern for several years now, he says.
The property group says that while the oil price volatility is no doubt a key influence, the high borrowing costs have been a major impediment to growth for the economy and property market, he says.
“We have already seen the bank itself, along with several financial institutions (including the IMF and World Bank) downgrade the GDP growth outlook closer to 1.1%, further prolonging the stagnation.”
Meanwhile, Stephan Potgieter, CEO of BetterHome Group Mortgage Origination and BetterBond, said global uncertainty may delay, but not derail, interest rate relief.
He said despite South Africa's improving economic fundamentals, escalating tensions in the Middle East could mean homeowners will have to wait longer for relief on their monthly bond repayments.
BetterBond's July Property Brief points to an improving domestic outlook, supported by stronger GDP growth, easing fuel prices and early signs of moderating inflationary pressures.
A recent comment from Investec also noted that changes to the weighting of food in the Consumer Price Index mean food price shocks are likely to have a smaller impact on headline inflation than in the past, supporting a more favourable inflation outlook and improving the prospects for future repo rate cuts.
The rand has also remained firm in recent months, trading around 8% stronger against the US dollar than it was a year ago. A stronger currency has helped contain imported inflation, but sustained increases in oil prices could offset some of those gains.
The resilience is evident too in the property market. BetterBond’s recent data showed that, despite May’s 25‑basis‑point increase in the repo rate to 7%, home loan application volumes have remained strong, sitting 5.7% higher than they were two years ago.
However, BetterHome said renewed conflict in the Middle East has made the global economic outlook more uncertain.
Higher oil and commodity prices could filter through to inflation worldwide, while rising electricity costs continue to place pressure on prices locally. Together, these factors could see the Monetary Policy Committee (MPC) taking a cautious approach at this week's repo rate meeting.
Economists are said to remain divided on the possible outcome. Some, including Bank of America, expect a 25-basis-point increase in the repo rate as inflation moves above the Reserve Bank's preferred inflation target range.
Others believe the Reserve Bank has done enough to curb inflation and will opt to keep rates unchanged while monitoring global developments and local risks.
While rate cuts may take a bit longer to arrive, the broader fundamentals of the property market remain strong.
On the local positives, domestic inflation is stabilising, the Rand has shown good resilience, and buyer demand remains solid across the housing market despite higher borrowing costs, Deon Labuschagne, a Property Practitioner at RealNet RainMaker, wrote in a LinkedIn post.
He says the global hurdles include the Middle East tensions and rising global oil prices, along with local electricity hikes, which are keeping inflation risks on the radar.
“Most economists anticipate the Reserve Bank will keep interest rates on hold for now to monitor global volatility, rather than cutting immediately.”