Lesetja Kganyago, governor of the South African Reserve Bank, will address the nation later today.
Image: SARB
WITH the South African Reserve Bank set to announce an interest rate hike, experts weigh in on the implications for homeowners and the property market amidst global inflationary pressures.
South African property market consumers are told to expect that interest rates will go up on Thursday, May 28.
This is as South African Reserve Bank (SARB) Governor Lesetja Kganyago will deliver the Monetary Policy Committee statement.
South African consumers have been here before - it is an expected response to what is happening globally, in order to manage a broad set of complex factors, says Benay Sager, the Executive Head of DebtBusters.
“So that should be the expectation: prepare for higher interest rates, so that you can try to budget accordingly,” Sager says.
He says the MPC always considers a range of factors when it decides.
“But I think the expected decision is that interest rates will go up tomorrow (Thursday) and the reason for this is because of the global factors that are driving inflation, particularly administrative prices like petrol and the uncertainty surrounding it. We can already see that inflation (CPI) has been increasing, and that’s expected to increase even further, given that electricity - which is a key input to the PPI - also keeps going up. As a result, our expectation is that interest rates will go up.”
The executive head says the higher the interest rates, generally the less appetite there is in terms of new homeownership. On the other hand he says the lower the interest rates, the more people are interested, as they are able to borrow at a better rate and pay it off.
“From a consumer and homeowner perspective, lower interest rates are better, in terms of what you’re paying on your bond - but it also detracts from some of the investment,” Sager says.
The ideal decision for the local economy would be an interest rate hold, maintaining the current repo rate at 6.75% (prime at 10.25%), says Dr Frank Magwegwe, a senior lecturer at the Gordon Institute of Business Science(GIBS).
He says a pause would provide a much-needed psychological and financial breather to over-extended consumers and stimulate building starts for developers. However, he says the MPC is highly unlikely to make this accommodating choice.
Given that recent consumer inflation figures have breached the central bank's preferred 3.0% target to hit a multi-month high of 4.0%, the SARB will likely execute a defensive, pre-emptive 25-basis-point hike to 7.00% (prime rising to 10.50%).”
Kganyago has repeatedly stated that the bank is committed to anchoring its strict 3% inflation target, the lecturer says. He adds that the MPC will feel compelled to act against global supply-side shocks, specifically rising international energy and fuel costs driven by geopolitical conflicts, to prevent second-round inflationary effects from embedding in the services sector.
Budget defensively for a temporary upward adjustment
According to Magwegwe, the core message to all property market participants is that they should budget defensively for a temporary upward adjustment while maintaining a long-term strategic perspective. He says even if prime ticks up to 10.50%, borrowing costs remain manageable compared to historic historical peaks.
“Homeowners and tenants should aggressively audit their monthly cash flows to absorb a potential increase in debt servicing costs. For developers and investors, the Western Cape’s strong underlying fundamentals underpinned by superior municipal governance and steady population inflows mean that property remains a highly secure asset class. Capital preservation should be prioritised over rapid expansion for the next two quarters.”
The South African property market is currently operating in a relatively stable environment, although affordability remains a major consideration across the market, says Fritz Swanepoel, CEO at Leapfrog Property Group.
He says consumers are still navigating pressure from fuel costs, electricity increases, municipal charges and broader living expenses.
The conflict and instability in the Middle East has introduced additional inflationary uncertainty globally, particularly through oil price volatility, which ultimately filters into transport, construction and household affordability in South Africa, he adds.
“What we are seeing in the market right now is not necessarily a slowdown in activity, but rather a slowdown in decision making. Buyers are still active, banks are still lending and realistically priced homes are still selling.
However, consumers are taking longer to make decisions, comparing more options, negotiating harder and assessing affordability far more carefully before committing. That means the period between listing and selling has generally lengthened compared to more active market conditions.”
The property group says homeowners and tenants remain cost conscious, investors are focusing more carefully on value and yield, and developers are understandably more selective around project feasibility and timing. “Importantly though, the market remains resilient. In many respects, the current environment is creating a more disciplined and sustainable property market built on realistic pricing, genuine demand and financially informed decision making.”