RESILIENT AND RESOURCEFUL

Residential property purchases stand up to interest rate hikes.

South Africans are nothing if not resilient and resourceful. Over the past few years, we have weathered a water shortage, a pandemic, and unrest in parts of the country. Throughout it all, the residential property market held strong and even boomed, buoyed by record-low interest rates in 2020. Coming off this strong base, and now faced with ongoing load shedding and inflationary pressures, the housing market is managing to hold steady; turning adversities into opportunities, says Carl Coetzee, CEO of BetterBond,

“Although rising interest rates have impacted house price growth and buyer activity in some regions and price segments. there have been pockets of positive growth in others. Ironically, the pandemic resulted in a shift in buying patterns, and this needs-based activity is contributing to the housing market’s prevailing resilience.” Buyers will pay more for a home that accommodates their work-from-home requirements, or that has access to the amenities and recreational activities that they want. “There is also an increased demand for sectional title properties that offer security and a sense of community. With many families prioritising safety and a quality of life, estate living is on the rise in many provinces,” says Coetzee.

“While uncomfortable, we must remember that the South African Reserve Bank started to increase interest rates in November 2021 to help curb inflationary pressures. This may have resulted in a slowdown in buyer activity across some price segments, and pushed up homeowners’ monthly bond repayments, but it does mean that South Africans can look forward to a drop in the interest rate towards the end of the year if inflation recovers within the midpoint target.” So, while the market has cooled in recent months, it is by no means sluggish. According to FNB’s Property Barometer for December 2022, the average time a property is on the market is nine weeks and four days, still well below the long-term average of 13 weeks, says Coetzee.

The surge in first-time buyer activity seen during the pandemic when the interest rate hit a record low of 7% has ebbed, but there are still pockets of opportunities for aspirant buyers. “New developments are particularly sought after among first-time buyers, as these purchases do not include transfer duties.” BetterBond‘s intake volumes for December 2022 show an almost 2% increase year-on-year in bond approvals for first-time buyers.

Another need driving market activity, despite rising interest rates, is the desire to semigrate to a new province for work or lifestyle opportunities. “The Western Cape remains the top semigration destination, with many families and retirees moving to former holiday towns along the coast,” says Coetzee. There has been a 4.4% increase in BetterBond‘s registrations in this province in the past six months. A change in life stage or employment is often the reason for semigration, with retirees opting to downscale the size of their properties, but not necessarily the value, as their priorities change.

Lightstone’s latest estate agents’ survey revealed that an increasing number of buyers want homes with solar power and other green features. “With no end in sight to load shedding, homeowners are willing to invest in homes that offer alternative energy options. Some banks include finance options for solar solutions with their bond offering. So, there is the assurance that while paying off a bond, you are also paying for your solar system which will offer a reprieve from load shedding.”

It’s assuring to note that South Africa is not the only housing market being affected by interest rate increases, and similar steps have been taken in other economies to stave off recession. Data from the United Kingdom, Germany and the United States suggest that these countries may be less likely than expected to tip into recession, says Coetzee, partly because they too increased interest rates in response to inflationary pressures.

“Investors tend to be more risk-averse during periods of economic uncertainty. Property, which is a long-term investment with a proven return on investment, remains a sound investment option, concludes Coetzee.