AnalysisResidential News

More belt-tightening as interest rate hikes again, property buyers becoming hesitant

Homeowners and consumers are in for more belt-tightening as the interest rate rises for the sixth successive time with the Reserve Bank hiking the repo rate by another 75 bps to 6.25% (base home loan rate to 9.75%.

This now effectively takes the interest rate back to the pre-pandemic level. Samuel Seeff, chairman of the Seeff Property Group, says while the hike was largely expected, stability is now vital for the economy and market.

We would have liked to have seen only a 50bps hike, but the 75bps hike is not a surprise, a 100bps hike would have been an overkill and too high under the present conditions. The Bank now also needs to signal when the hiking cycle will come to an end and when we can expect rates to start coming down again, he adds.

Although the oil price is more favourable and a positive for the economy, inflation remains above the Reserve Bank’s target range despite slowing slightly to 7.6% in August (from 7.8% in July). It is also understandable that the Bank would look to protect the currency in view of the further deterioration against the Doller this week.

Despite the balancing act that the Bank needs to do, Seeff says stability must return to the economy and property market. The economy needs a kickstart and a favourable interest rate is vital for this. Interest rates need to be kept as low as possible for as long as possible.

In terms of the impact of the hiking cycle on the property market, Seeff says we are beginning to see a two-paced market emerge. While demand is still high on the one side, buyer hesitancy is increasing with deals taking much longer on the other side.

Aside from the spiking interest rate, Seeff says the deteriorating conditions in the country are not helpful. The power outages combined, poor economic data and macro events including the Ukraine crisis could be compounding buyer hesitancy.

What this means is that after a buoyant first few months and an expected slowdown over winter, we have not seen much of the expected jump in September which usually sets in as the summer approaches. Seeff adds that we would need to monitor this over the next few months to assess whether a downward trend is now evident.

While a marginal slow-down in the market is understandable, Seeff says it remains relatively well balanced and is still performing above the pre-pandemic level. It is still a good time to sell, and provided you are in the right area and price range, you should be able to attract a buyer and a good price. If it is a good offer and fits in your price range, you should not wait for a better price.

Seeff says the price boom is now largely over. Price growth continues its steady decline and sellers are cautioned against holding back for higher prices. Buyers must now adjust to the higher interest rate, but Seeff says the upside is that there is now more room to negotiate more aggressively.

The deteriorating buying conditions will likely push more people into the rental market. Given that there are stock shortages in certain areas, Seeff says further that we could start seeing rental rates rise which will be good for the rental market which has been largely flat over the last two years.