Homes

Interest rate decision a relief for first-time homeowners’

South Africa's Reserve Bank has decided not to raise interest rates. How does this impact the property sector?

The Monetary Policy Committee (MPC) has decided to keep interest rates stable at 8.25% (repo rate), with the prime lending rate at 11.75%. This decision, which comes as a great relief to homeowners, aligns with interest rate decisions of other central banks such as the Federal Reserve in the US, the European Central Bank, and the Bank of England.

Property market impact

First-time homeowners have been hardest hit by a steady upward trajectory of interest rates in South Africa – and are probably the most relieved by the Reserve Bank’s decision not to hike interest rates ahead of the festive season, according to founder and chairperson of Tyson Properties, Chris Tyson.

Tyson, together with Tyson Properties CEO Nick Pearson, have welcomed the decision by the Reserve Bank’s Monetary Committee to leave the repo rate at an unchanged 8.25%, saying that this move would inject a little more confidence into the property market come year-end.

“It’s certainly going to be a good thing for both buyers and sellers and might just provide some extra confidence, which we do need. We had a strong start to the year, but the past three months have been a little slower. I think that if we now get a levelling off period, a gap during which things can settle a bit, it will certainly stimulate the economy. Hopefully, by the middle of next year, we will see one or two decreases in the interest rate,” Pearson said.

Tyson said he believed that the country had reached the top end of the interest rate cycle for now.

Interest rates reached their lowest ever during the pandemic, tempting many first-time homeowners into the market. However, since November 2021, bond repayments have increased steadily on the back of continued interest rate hikes, with the current prime lending rate at 11.75%. This has put massive pressure on those repaying bonds whilst also having to contend with climbing food and petrol prices and shrinking disposable incomes.

According to research from Lightstone, many of those who benefitted from buying when the prime interest rate hit a multi-decade low of 7% in 2020 and remained below 8% until May 2022 had ultimately overstretched themselves and were now being forced to sell because they could no longer meet their high bond repayments.

Lighthouse’s research showed that the number of homeowners being forced to sell properties they had only bought two years prior had jumped from 2% of total sales in May last year to 3.7% a year later, an increase of more than 80%. Although Tyson expects this to level off, he nevertheless advises a common-sense approach to buying properties going forward.

“I don’t want to give the impression that interest rates will fall to ultra-low post-Covid levels again. They might come down 1% or 2% next year, but then they will probably sit at that level for some time, as they have in the past.”

He said that although market conditions could be expected to improve in the wake of an expected interest rate drop next year, growth was likely to be subdued during an election year with many investors waiting out any uncertainty. As a result, the property market was only likely to show a decisive improvement from the beginning of 2025.

Tyson pointed out that, although there were still a lot of deals to be done in the Johannesburg residential market, the entry-level segment had come under very real pressure, with large numbers of young people opting to rent rather than buy due to high interest rates. In Johannesburg, Tyson Properties has more than tripled its rental portfolio over the past two years.

Nevertheless, he added that many areas were still in positive territory.

“Although interest rates have played a big part in the market over the last year-and-a-half, with some areas dropping by as much as 46%, we are finding that properties located in areas that offer a good lifestyle, affordability, security, convenience and good schooling are still selling well,” he said.

Tyson said Tyson Properties was seeing growth in all three of its primary markets – Cape Town, Gauteng and KwaZulu-Natal as well as in the Eastern Cape. Hot spots, which included Cape Town and Western Cape Towns such as Somerset West and Paarl and the KZN coastal town of Ballito, had also seen spikes in interest, as had small towns in the Midlands where people were buying to achieve a different way of life.

Writer: Nicola Chaning-Pearce

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