The National Electricity Regulator’s announcement of approval for a 24.8 per cent electricity price hike for Eskom will mean higher home loan rates in the medium term, and home owners should explore all their options to soften the blow, says the chief executive of the ERA South Africa property group, Gerhard Kotzé.
“The announcement will undoubtedly be inflationary. Clearly the so-called ‘soft’ interest rate cycle is about to change and home owners should plan their finances and examine their options accordingly,” he says.
“I agree with FNB economist John Loos that home buyers should build higher interest rates into their planning, allowing for further cost increases as water and other utility providers follow Eskom’s lead in demanding price hikes to fund infrastructure maintenance and roll-out costs.
“One option available to home owners in good standing with their lenders is to fix their home loan rates. Typically this would be at a slightly higher rate than the current rate, with the borrower effectively paying a premium for the privilege of a known cost in future.
“Home owners who choose this option, where their banks permit it, would therefore take the initial ‘pain’ of higher monthly payments upfront, but benefit later when interest rates ‘catch up’ and then exceed their fixed rate.”
The basic message, says Kotzé, is that the days of relatively cheap energy are over. The effects could include a demand for cheaper homes, an even stronger swing to smaller homes, energy saving provisions in new residential developments and en masse retrofitting of energy saving devices to existing homes.
“And it’s unfortunate that the tariff hike announcement was not accompanied by clarity on Eskom’s electricity supply connection policy on new residential developments. Given the lead times for such developments and uncertainty about electricity connections, this requires urgent attention.
“Numerous residential developments were put on hold or mothballed because of the uncertainty about electricity connections and though that may have suited circumstances last year when consumer demand was low, the picture could change drastically as the market continues to recover and could even lead to a shortage of housing stock,” says Kotzé.
