22 September 2022
South Africans are facing unprecedented financial pressure with inflation at a 13-year high of 7.8% as of July. Food, fuel and transport have all reached record levels in recent months. Some basic food items have seen increases of more than 100%.
With little control over contributing factors like the ongoing electricity crisis and the war in Ukraine, the South African Reserve Bank has once again turned to the interest rate in an effort to curb runaway inflation.
The 75-basis-point interest rate increase announced today is the sixth in a row. It brings the prime lending rate to 9.75%.
“Realistically, the SARB is caught between a rock and hard place right now,” says Tony Clarke, MD
of the Rawson Property Group. “They know full well the financial pressure that consumers are under, and how raising interest rates will affect them in the short term, but they also know how much worse things could get if inflation is left to spiral out of control.”
Clarke says that raising interest rates is a tried and tested method of controlling outsized inflation. However, it often makes life harder before circumstances improve.
“Homeowners will definitely start feeling the pinch as their bond repayments continue to climb, right alongside the rest of their everyday expenses,” says Clarke. “For some, there are going to be very difficult decisions ahead. Most households have very few luxuries left to cut back.”
Despite some relief in the form of September’s petrol price decrease, Clarke says this rapid climb will doubtless push some homeowners past the point of no return if their finances are not in order.
“We do expect to see an increase in distressed sales by homeowners no longer able to service their debt,” he says. “This is always a heart-breaking situation, but it doesn’t have to be a life altering financial loss.”
Clarke says the first step for struggling homeowners is to approach lenders to discuss options for relief. Should these efforts fail, however, he strongly advises selling earlier rather than later.
“You really want to avoid being pushed into a rushed sale or, heaven-forbid, having your property repossessed,” he says. “Making the responsible choice to cut your losses early on enables you to take a little more time and work with an experienced realtor to recoup as much value from your property investment as possible.”
With more properties likely to hit the market, and fewer buyers incentivised to act, Clarke says supply will continue to outpace demand for now. This will keep pressure on house price growth in the short term, offering good value-for-money to those able to buy now, with an inevitable upswing just over the horizon.
“In every crisis, there is opportunity,” he says. “That could mean selling now to reduce your debt and improve your financial liquidity, or buying while prices are low to benefit from future growth. It could even mean choosing to renovate rather than upgrade to a new home. The most important thing is not to make impulsive moves out of panic. Do your research, consult with the property experts in your area, and empower yourself to make informed property decisions.”
