2020's cracking rate cut spell to ease the financial hit of Covid-19 seems to have come to an end - here's the suggested outlook for the property industry as a whole.


The repo rate may remain unchanged, but the scene has already been set for a market recovery as interest rates are at their lowest in recent history.

The South African Reserve Bank (SARB) kept the repurchase (repo) rate unchanged at 3.5% per annum, following Thursday’s Monetary Policy Committee (MPC) meeting.

SARB Governor Lesetja Kganyago made the announcement, saying “two members of the committee preferred a 25 basis point cut while three preferred to hold rates at the current level”.

SARB anticipates no further repo rate cuts in the near term, and “two rate increases in the third and fourth quarters of 2021”. 

This is the first time the SARB has not decreased the repo rate since the advent of COVID-19 in the country in March when SARB MPC cut the repo rate by 100 basis. A second 100 basis points cut was announced in April, followed by two 25 basis point cuts in May and a further 25 basis point cut in July.

The Committee noted that the economic contraction and slow recovery will keep inflation below the midpoint of the target range for this year.

Barring risks outlined earlier, inflation is expected to be well contained over the medium-term, remaining below but close to the midpoint in 2021 and 2022.

While the rates decision was expected following five aggressive rate cuts, industry experts agree the significantly worse GDP data of a 51% y/y contraction in the second quarter according to Stats SA, and weaker outlook for the year leaves room for SARB to provide a rate cut at the next meeting.

This will be a vital stimulus to reignite the economy which, save for the residential property market, has not seen any major impact from the rate cuts.

‘Limited Q3 recover shows room for more rate cuts’

Limited Q3 recovery in South Africa’s economy certainly makes the case for a further lowering of the repo rate.

It highlights consumers’ hesitance and limited ability to spend, with the return of load shedding casting a further shadow, while there is as yet no real sign of meaningful economic reforms or stimulus, resulting in both consumer and business confidence remaining severely constrained.

Are banks taking advantage of the liquidity of recent rate cuts?


However, the decision to keep interest rates unchanged was ‘baffling’, given the need for radical economic recovery in the country.  

Data showed a clear shift in the interest rates granted by banks on home loans pre- and post-lockdown.

In Q1 2020, 54% of home loans granted were below the prime interest rate. After 1 June, this was turned on its head, with only 27% of home loans being given interest rates below prime – meaning nearly three-quarters of homebuyers in this period are paying prime or above.

This means one of two things: “either banks have fundamentally repriced the long-term risk of lending in South Africa, or they are taking advantage of the existing liquidity offered by the SARB to increase margins and take profits. Banks will always argue the former, but the evidence right now suggests the latter.

Optimism for property rebound remains

This is the first time in the history of the new South Africa that it is possible to buy a home at an interest rate this low, says Carl Coetzee, CEO of Betterbond.

If you buy a R1 million home, at the 7% prime it is now, you are paying 80% less than you would have in 1994 when the interest rate was at 16.25%. This means that when most buyers were able to enter the property market for the first time in a democratic South Africa, it would have cost them R3.4 million in repayments for the same R1 million property that today will cost just R1.86 million to finance.

An increase in average house prices

FNB has reported house price growth of 1.4% year on year.

Data shows an increase in average house prices listed in bond applications across all price bands.

The lower interest rate is stimulating demand, which in turn is strengthening house prices, especially at the lower end of the market. Buyers are able to qualify for bigger bond amounts because of the lower interest rate, and it remains an ideal time to bond.

Bond application volumes over the last three months have exceeded pre-lockdown levels, with BetterBond recording a 52% increase year-on-year in August.

This trend is continuing in September, with figures thus far already showing a 48% increase in applications year-on-year. Especially encouraging is that of the increased volume of applications since June, 70% were from first-home buyers, up from the 60% recorded previously.

‘123% increase in online pre-approval applications’

Similarly, first-time buyers continue to boost sales, representing 54.5% of home loans in July, while the trailing effective bond approval rate rebounded to 82.2% in July and is rapidly approaching levels seen in the months before lockdown.

Furthermore, they've seen a staggering 123% increase in online pre-approval applications since June which, if they translate into approved bonds, could add further impetus to the market recovery we are already seeing.

The approval rate for pre-qualified buyers of 91% and 79% for non-qualified buyers continued to recover in July, with the pre-qualified rate now back to pre-lockdown levels.


'100% bond applications approval rates increase'

Positively for home buyers, the average deposit as a percentage of purchase price remained relatively low at 8.2% in July, still close to May’s record low of 6.7% (series started in mid-2007), while 100% bond applications stood at 63.2% in July, with an approval rate of 81.7% in the same month.

The average bond amount has increased from R1 million to R1.2 million and almost 60% of all applications approved in August were for bonds of 100% and higher of the purchase price.

Furthermore, the average amount of the deposit required for a bond has also dropped across all price segments, “as banks show their willingness to grant larger bonds.

Properties now selling faster

Properties are currently selling at some of the fastest rates in recent years, being within 11 weeks on average compared to 14 weeks in the second quarter.

The aggressive rate cuts have seen a boom in first-property buyer’s as well as created a boost in the R5 million to R8 million.

There has also been a mini coastal boom in areas targeted by semi-gration buyers, from Cape Town to Hermanus and Plettenberg Bay and the KZN North Coast. Those who are not moving permanently are setting up second homes where they can spend extended periods; the remote working trend being a major driver of this.

Luxury price segment rebound uncertain

In the residential property market currently, while particularly the middle and lower sectors of the market are still fuelling activity, the luxury market is also experiencing green shoots of increasing transactions.

Looking ahead, we are in uncertain times. Although there has been a number of high-value property sales, the luxury and investment sectors remain muted despite the good stock and relatively competitive pricing.

These buyers are anxious to first see a return of confidence, decisive action on corruption including arrests and economic policy aimed at growth rather than debt accumulation. In the meantime, buyers are able to take advantage of the lowest interest rate in over five decades. The positive activity in the market paves the way for more movement and new stock to come onto the market. Developers may also consider coming back if this is sustained.


Courtesy of Property24



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