Is there light at the end of the tunnel for SA’s property market?

21 September 2023

Is there light at the end of the tunnel for SA’s property market?

Today’s Monetary Policy Committee announcement of zero change to the current interest rate has property owners around the country breathing a collective sigh of relief. General consensus from economists is that this announcement signals the end of the current rates hike cycle, which saw the prime lending rate climb a full 5% (from 7% to 12%) in the space of just two years.

“This has been an exceptionally tough time for South Africans, and property owners in particular,” says Tony Clarke, MD of the Rawson Property Group. “Pegging interest rates at their current levels may be a more conservative approach than many hoped for, but it’s definitely a step in the right direction for the property market.”

Clarke says more significant relief is predicted towards the end of 2024, when interest rates are expected to begin a slow decline.  “This outcome does rely on local inflation remaining within reasonable bounds, and no further hikes by the US Federal Reserve,” he cautions, “but for now, all signs point towards stabilisation with a gentle downward trend starting around this time next year.”

Subdued national house price growth
Interest rate stabilisation is good news for national house price growth, which contracted to a mere 1.1% in July (according to FNB’s August Property Barometer report). This, together with slowing demand and affordability-driven downscaling trends, has led to a 3% decline in average bond figures (as estimated by FNB based on deeds data), and a 10.3% drop in transfer duty income compared to last year. “It’s been 14 years since the last time average bond amounts went down,” says Clarke. “That goes to show just how severe this period of economic decline has been. We’re hopeful that an ease in the interest rates hike cycle will renew market confidence while affordability recovers. This would help to rekindle property market activity and boost national house price growth over time.”

Resilience in lower price brackets
According to Clarke, the upper ends of the property market have experienced the greatest downward price pressure. “The more affordable price brackets have been relatively resilient,” he says. “This is often the case, but is particularly noticeable at present due to increased demand from high-income households that are downscaling. Certain areas, like the Eastern and Western Cape, have also continued to outperform national averages.”

Ongoing buyers’ market conditions
In general, Clarke says market conditions strongly favour buyers – and are likely to do so for some time to come.  A recent FNB survey supports this view, revealing a 75% increase in the number of sellers having to drop their original asking price to secure a sale. (Actual price reductions have remained stable at around 10% of asking price, on average.) “It’s a difficult time for sellers, many of whom are having to adjust their expectations,” says Clarke. “It’s best if this can be done before entering the market, because overpricing is known to backfire on final sales prices. If you do go in too high, it’s important to price-correct quickly to avoid alienating buyers or creating an undesirable impression.”

An eye on the future
While interest rate stabilisation is a positive step, Clarke says it’s early days yet for South Africa’s property owners. “Realistically, we’re still in for a long period of relatively high interest rates and relatively low economic – and income – growth,” he says. “That’s not to say there aren’t going to be some incredible property opportunities ripe for the picking. It just means we need to approach these with our eyes wide open, and our feet planted firmly on the ground.”