26 January 2023

With interest rates climbing yet again, it is clear that the SARB is intent on further curbing inflation. “Understandably, people are feeling the ever-increasing pinch of this recent series of hikes, but in the long run not doing so will be more harmful than raising interest rates.” says Tony Clarke, MD of the Rawson Property Group. “A potential hold on the rate could follow in May and July, with the latter part of the year seeing another 50 basis point increase in total. Looking even further ahead - if current hikes have the desired effect - we could start seeing reductions in the latter part of 2024.”

Homeowners may be justifiably concerned over the potential impact on their property values. However, according to Clarke, the situation on the ground is not nearly as dire as popular opinion would have us think. 

“There are a lot of myths and misconceptions doing the rounds on the property market at the moment,” he says. “A lot of them are easy to believe because they tie into our biggest fears as property owners, buyers and sellers.”

Instead of falling prey to panic, however, Clarke encourages homeowners to separate fact from fiction – preferably with the help of a property expert – before making any decisions that might backfire in the long run.

Here are three of the most common misconceptions that could lead buyers, sellers and homeowners astray.

Myth 1: Property prices are in freefall

While national house price inflation has been decreasing year-on-year since 2021, Clarke says this doesn’t mean that property prices are actually dropping.

“House price inflation is the rate at which residential property prices grow,” he explains. “As long as that rate is positive, it means house prices are growing. Not necessarily quickly, or even as quickly as consumer inflation, but definitely not plummeting in value as some people seem to believe.”

Clarke says this means excellent value available for buyers, but not quite the rock-bottom, bargain-basement prices some may expect. 

“Sellers are definitely still achieving fair returns on their investments,” he adds, “particularly if they have owned the property in question for more than a handful of years.”

Myth 2: All properties are affected equally

While average statistics like national house price inflation are useful for identifying general trends, Clarke says it’s a mistake to assume these trends apply equally to all property types and value bands. 

According to the latest Residential Property Indices report from Lightstone, there are dramatic differences in performance between various properties.

“Inflation in the low value property segment was a very healthy 9.1%,” says Clarke. “That figure drops as property values increase, with the luxury value band experiencing the lowest price inflation at 1.8%.

“This is a classic example of the resilience of affordable housing, in particular, in the face of political and economic pressures,” Clarke continues. “It’s also one of the biggest reasons I’m such a supporter of equitable access to affordable housing investment opportunities. These properties can provide an incredibly stable foundation on which to build a secure financial future.”

Myth 3: Western Cape properties have the highest growth

Frequently touted as the most expensive province in which to purchase property, Clarke says most people believe the Western Cape is also currently experiencing the highest property price growth.

“Word on the street is that everyone and their uncle are moving to Cape Town and that you can’t buy a property there without selling several vital organs,” he says. “Whilst it’s true that semigration to the Western Cape is increasing, property prices there are actually relatively stable.”

In reality, Lightstone statistics show the Eastern Cape (7.09%), Northern Cape (7.02%), Mpumalanga (6.83%), Limpopo (6.73%) and Free State (5.83%) all have higher house price inflation than the Western Cape (5.42%).

City of Cape Town’s annual house price inflation as of September 2022 was on par with Ethekwini (3.4%) and less than half that of Nelson Mandela Bay (8.8%).

Stay informed

“Trends over the last year go to show that you can’t take everything you hear on face value,” says Clarke. “A significant drop in property demand from buyers, which was expected to follow increased inflation and the recent wave of interest rate hikes, has not played out. Instead, shifts in what buyers are looking for, as well as a strengthening rental market, means that things are still looking decidedly positive.”

“Listen, read, inform yourself as much as you can, but don’t underestimate the importance of getting real, on-the-ground advice from a property expert in your area before making any big decisions.”