The Monetary Policy Committee (MPC) has given the property market breathing room but not a free pass.
Image: Terry Haywood
An interest rate hold does not mean the pressure on households is over.
Inflation remains high, and the Monetary Policy Committee (MPC) has made it clear that another increase is possible if prices continue to rise, says Ezra Rasethe, president and CEO of investRand.
On Thursday, Lesetja Kganyago, the Governor at the South African Reserve Bank(SARB), said the committee decided to keep the policy rate unchanged, at 7%, and the prime at 10.50%.
“We welcome the MPC's decision to keep the policy rate unchanged at 7.00%,” Rasethe says.
“This gives households and businesses time to absorb the interest-rate increase announced in May.”
He says the hold means bond repayments will not increase again this month. “This gives homeowners, buyers, investors and developers some short-term certainty.
“However, borrowing costs remain high. Some buyers may still struggle to qualify for home loans, while investors and developers must continue managing high finance and operating costs.”
The CEO says the property market will continue moving at two speeds. He says properties in areas with strong demand, affordable prices and sustainable rental income should remain more resilient.
Properties that depend on high price growth or weak rental demand will face greater pressure, he says.
“This decision does not change the fundamentals of a good property investment. Investors must still buy based on real demand and cash flow - not hope that interest rates will soon fall.”
According to investRand, potential homeowners should get pre-qualified, understand the full cost of ownership and leave room in their budgets for future increases.
It says existing homeowners who are struggling should speak to their banks early and avoid waiting until they fall behind on payments.
To tenants, it says they should consider the total cost of where they live, including rent, transport and utilities.
It advises property investors to stress-test every deal, protect their cash flow and keep emergency reserves. A property should still make sense even if interest rates remain high for longer, it says.
Developers should focus on projects supported by proven demand and affordable pricing instead of relying on future price growth, investRand advises.
"The MPC has given the property market breathing room, but not a free pass. The winners will be buyers and investors who use this period of stability to make disciplined decisions based on demand, affordability and sustainable cash flow," says Rasethe.
This is a necessary measure for stability and avoids punishing overburdened consumers and the economy further, says Samuel Seeff, chairman of the Seeff Property Group.
He says the news of an improved inflation outlook and potential restart of the rate-cutting cycle at a later stage is also welcomed. Seeff says this avoids further shocks to consumers and the economy.
“As it is, consumers have had to absorb significant cost pressures beyond their control due to imported fuel spikes and excessive electricity tariffs resulting from years of poor governance.”
He says the decision was supported by underlying economic indicators including an improved inflation outlook despite the recent spike to 5%, a lower oil price compared to May, and the strength of the Rand.
“Hopefully the economy can start getting back on track. As it is, he says, the growth outlook has already been downgraded by the Reserve Bank, the IMF, and the World Bank, and we cannot afford a continuation of the economic stagnation and risk of more job losses,” Seeff says.
Although the Reserve Bank’s decision to keep the interest rate unchanged does not provide immediate financial relief, it prevents a further increase in bond repayments and other borrowing costs at a time when households are already under significant pressure, says René Moonsamy, the chairperson of the National Debt Counselling Association (NDCA)
She says the decision reflects the difficult balance between controlling inflation and avoiding further harm to consumers and the economy. Inflation has risen, and many households have very little capacity to absorb another increase, she adds.
“Existing homeowners with variable-rate bonds will not face another immediate increase in their repayments, while prospective buyers can assess their affordability against a more stable interest-rate position.
“However, affordability remains constrained. High borrowing costs, increased living expenses and limited household disposable income will continue to influence the value of the properties consumers can afford and whether they qualify for finance,” Moonsamy says.
Potential homeowners should purchase based on what they can comfortably afford at the current interest rate, rather than assuming that rates will come down soon, the NDCA says.
“Their budgets must include not only the bond repayment, but also rates, levies, insurance, maintenance and provision for unexpected expenses.”
The organisation which represents debt counsellors operating in South Africa says existing homeowners who are struggling should speak to their credit providers as early as possible.
Waiting until several payments have been missed generally reduces the options available and increases the risk of legal action or loss of the property, it says.
“Tenants should also budget carefully, as landlords continue to face higher financing, maintenance, insurance and municipal costs, which may eventually affect rentals,” Moonsamy says.