The South African Reserve Bank’s decision today to keep the repo rate unchanged at 6,75% and the prime lending rate at 10,25% was widely expected in the light of the current global uncertainty around oil supplies and prices, and the potential effects of this on inflation.
And, says Berry Everitt, CEO of the Chas Everitt International property group, the move will be welcomed by many borrowers and especially those who have recently bought a new home and have a new home loan.
“However, it also reinforces a very important message for home sellers, which is that, important as they are, interest rates are really only one of many factors shaping today’s residential property market.”
In the six months to the end of February, he notes, SA benefited from a rare alignment of supportive macro-economic conditions. Inflation remained unusually contained (coming in at 3% in February) and enabled the SARB to stabilise interest rates at lower levels. At the same time, government bond yields declined materially, reflecting improved investor confidence in the country’s fiscal position and inflation outlook.
“Together, these factors improved mortgage affordability substantially and helped revive buyer activity across many residential markets. Estate agents reported increased enquiries, stronger attendance at viewings and improved selling conditions. But as is typical in property cycles, transaction volumes started to recover before any meaningful acceleration in house prices.
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“And today’s rate decision highlights how quickly the balance of risks can shift because of factors that ostensibly have nothing to do with real estate. The SARB has made it clear that upward inflation pressures, driven in part by geopolitical tensions and higher oil prices, now pose a meaningful threat to the outlook on rates – and possibly even to economic growth and job creation. There is even a chance that interest rates could be raised again, contrary to earlier predictions by many economists that there would be at least two cuts this year.”
The environment, says Everitt, makes pricing discipline more important than ever for property sellers. “We believe that while demand will continue to increase, buyers will become increasingly price-conscious until rates start to move down again.
“We need to remember that recent affordability and demand gains have come primarily from lower inflation, falling bond yields and rate reductions rather than an economy experiencing rapid income growth or excess liquidity. As a result, buyers are far more sensitive to value and comparative pricing within each local market.
“Local inventory conditions remain the decisive factor in most areas. In those where stock levels are still elevated, sellers are competing with one another for a limited pool of qualified buyers. Raising asking prices prematurely in such conditions risks longer selling times and failed negotiations, even as the overall market sentiment improves.
“History shows us that price growth typically follows sustained increases in transaction volumes and tightening inventory, not the other way around.”
He says the SARB’s decision to hold rates steady should not therefore be seen as a green light for sellers to raise their expectations. “The foundations for market recovery are in place, but they remain sensitive to global shocks and inflation risks. Sellers who factor in the wider macro-economic backdrop, government bond markets and local supply-and-demand dynamics will be far better positioned to price realistically and achieve successful outcomes.
“In short, realism – not optimism – remains the most effective pricing strategy in the current phase of the property cycle.”
