The South African Reserve Bank announced that interest rates will once again remain unchanged, maintaining the prime lending rate at 11.75%.
This decision has been met with surprising equanimity by property experts who, until recently, were predicting the start of a long-awaited interest rate cut cycle.
“Inflation is proving remarkably sticky on a global level right now,” said David Jacobs, regional sales manager for the Rawson Property Group.
“Unfortunately, that does mean we’re unlikely to see interest rates going down for at least a few months more. That’s not the news homeowners struggling with affordability issues were hoping for, but it’s not the worst thing for the market in general.”
He said the last year of unchanged interest rates has played an important role in rebuilding market confidence.
"There’s a lot less fear out there on the market,” he says. “Conditions certainly aren’t ideal yet, and affordability is still under pressure, but buyers and sellers aren’t paralysed with anxiety over the next interest rate increase anymore. The general consensus is that things are going to get better. It’s just a matter of when.”
Elections put a pin in decision-making
While confidence is recovering, Jacobs notes that market activity in certain price brackets has taken a dip in the lead-up to elections. “The upper end of the market, in particular, seems to be adopting a wait-and-see-approach,” he said.
“Realistically, we don’t expect this to last. Regardless of what happens, people will always need homes. Once the election excitement is over, we fully expect market activity to return to normal levels, with a flood of fresh stock hitting the market.”
Semigration normalising
One trend Jacobs does not expect to return to full strength post elections is that of semigration.
“Property prices in popular semigration destinations like the Western Cape have risen to such an extent that out-of-town buyers are struggling to afford properties equivalent to those they are leaving,” he said.
“This value gap has definitely lessened the appeal of semigration for many.”
This is exacerbated by the fact that millionaire foreigners are increasingly purchasing property in parts of South Africa, particularly in Cape Town.
In the first quarter of 2024, up to 32% of property sales in some areas were to international buyers.
Real estate agents report that Cape Town's luxury property market is on track for a record year, driven by foreign buyers and people relocating from other provinces.
Data from Lightstone indicates that most of these transactions occurred in Cape Town, with sales nearing R800 million, predominantly in the Atlantic Seaboard, City Bowl, and Southern Suburbs.
Alexa Horne, managing director of DG Properties, reported over R150 million in sales in just four weeks in Bishopscourt, with significant sales in Upper Constantia as well. Properties in Higgovale, Sea Point, and the V&A Waterfront, along with smaller luxury apartments and mixed-use developments near the CBD, are also seeing high demand.
Andre Coetzee, managing director of Lew Geffen Sotheby’s International Realty, noted that many buyers from Europe purchase properties to escape the winter, staying in South Africa for three to six months annually.
He highlighted a growing community of German, Swiss, and Dutch nationals in Somerset West, who prefer properties in gated estates priced between R4 million and R12 million.
Additionally, European millionaires continue to purchase homes exceeding R20 million.
Plugging the gap
Developers like Balwin Properties have stepped in to plug the price gap in the Western Cape. The provider of affordable apartments noted earlier this month that the Western Cape has surpassed Gauteng as the primary revenue source for the group.
In its annual report released alongside the yearly results, the company noted its high sensitivity to interest rates.
CEO Steve Brookes told shareholders that ongoing high interest rates and rising living costs, exceeding inflation, have pressured consumer spending and reduced the affordability of loans, leading to a decreased demand for apartments.
The Western Cape has emerged as the company's largest revenue generator for the first time, contributing 46% of the annual revenue, up from 35% the previous year.
Jacobs said the property market in Gauteng is showing signs of recovery. As a result, would-be semigrants may find themselves perfectly positioned to take advantage of an emerging property growth cycle much closer to home.
Lending appetites remain stable
While ongoing economic pressure continues to affect buyers’ affordability, Leonard Kondowe, national manager at Rawson Finance, said lenders remain eager for qualified home finance applicants.
“Applicants with pristine financial profiles can look forward to some very favourable home loan offers,” he said.
“Lenders are pulling out all the stops to incentivise low risk bondholders to join their portfolios.”
As for those with less ideal financial histories, Kondowe says remediation efforts can pay real dividends in today’s lending landscape.
“The higher an applicant’s risk profile, the higher the interest rate lenders will require them to pay – assuming they are willing to take on the risk at all,” said Kondowe.
“Taking the time to address outstanding debt, minimise expenses and save for a reasonable deposit can have a very real effect on your eventual bond offer, and the total interest you’ll end up paying over the lifetime of your mortgage loan.”
As for making the most of the current financial climate, Kondowe urges prospective buyers to focus on affordability and avoid overstretching their finances.
“We are confident that the interest rate will come down in future, but we don’t know when or by how much,” he said.
“Instead of relying on what might come, focus on finding a property with good long-term equity growth potential, and building the financial resilience to handle any unforeseen bumps in the road.”
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