Property market braced for steeper interest rate climb

Today’s announcement by the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) to increase interest rates by 50 basis points has been met with surprising calm from the property industry. 

While increases have been widely expected as part of the post-COVID interest rate normalisation trend, few expected the upswing to take such a sharp turn so early on.

“We were hoping for a more moderate 25 basis point hike, but the 50-point increase wasn’t entirely unexpected,” says Tony Clarke, Managing Director of the Rawson Property Group. “Between the weaker rand, rising international interest rates and massive fuel price hikes on the horizon – which will likely push inflation over the SARB’s 6% upper limit – there was little else the MPC could reasonably do.” 

This is highly unlikely to be the last interest rate increase in the short term, either. Economists are predicting several more hikes this year with upper estimates pegging prime at 9.5% by December. 

While Clarke says there is always hope for a reversal of the upwards trend, the effect of the current increases on the property industry will be noticeable but not catastrophic.

“We do expect a slight drop in demand with a corresponding increase in stock levels,” says Clarke. “Buyers will be extremely demanding and cost-conscious and not afraid to push their luck during negotiations. Sellers will need to take this into account when positioning their properties, leaning on the skills of property professionals to compete effectively.”

Clarke says that there could also be an increase in urgent and/or distressed property sales as people who previously bought at the limit of their affordability feel the pinch of higher interest rates. This, together with the general perception of a less favourable property finance landscape, could see some expansion of the rental market’s tenant pool. 

“This is unlikely to be significant enough to impact rental growth immediately,” Clarke says. “Realistically, we’re not expecting amazing improvements to rental or house price growth in the short term, apart from a few high-demand pockets. That said, it’s far too early for existing homeowners or property investors to panic over the value of their property assets. Short-term market fluctuations are normal. In the long term, property remains a highly performant asset class.”

With that in mind, Clarke says current conditions could provide excellent opportunities for buyers with a long-term view on growth potential. 

“It’s definitely not the time to overextend,” he says, “and I do recommend doing a thorough budget analysis before any purchase and it would be wise for buyers to get prequalified. Getting prequalified is a very important step for a buyer when navigating the current market as it will help with figuring out your affordability. 

That said, there are going to be some great bargains on offer, particularly for those able to mitigate the effects of more expensive lending through sizeable deposits or cash purchases.”