Promising signs for an uptick in activity in SA’s housing market

As expected, the SA Reserve Bank’s Monetary Policy Committee (MPC) kept the repo rate steady. This means the prime lending rate remains at 10.25% and the repo rate at 6.75%.

“The MPC was obviously taking a conservative approach against the backdrop of rising fuel prices, and with a wary eye on CPI inflation,” says Dr Andrew Golding, chief executive of the Pam Golding Property group.

“However, a reduction in the repo rate, on the back of the market-friendly election outcome, would have created stimulus for the economy and property market, as well as a confidence boost for consumers in general, especially home owners and buyers with outstanding mortgages and hefty bond repayments.

“Having said that, and based on the Pam Golding Residential Property Index April statistics, it is encouraging to see that the national housing market already appears to be starting to see promising signs which bode well for an uptick in activity now that the dust has settled on the elections.”

Golding says good news is that the slowdown in national house prices appears to be bottoming out, with national house price inflation steady at 3.7% in March and April.

“We believe the stabilisation and potential for a turnaround in the national market is being driven by a combination of a gradual strengthening in Gauteng and a tentative rebound in the Western Cape region, which had experienced a price correction. Despite this, the Western Cape remains the top performing major region overall, with the strongest regional price growth (6.75%) across all price bands. Interestingly, the East Rand continues to enjoy a modest rebound and is currently the top performing Gauteng market.

“Given that the above statistics are for the pre-election period, this is a positive indicator which makes the case for a turnaround even stronger – as after each of the five general elections held since 1994, the SA housing market has experienced a rebound of varying degrees during the subsequent 12 months. So, if history does indeed repeat itself, and given that much of the uncertainty which has been hanging over the market is finally removed, activity and price growth are likely to recover – more noticeably after the seasonally quiet winter months – and the residential market should soon begin to strengthen on a broader scale.

Regional Director and chief executive of RE/MAX of Southern Africa, Adrian Goslett, says the decision to keep interest rates stable was a predictable move by the MPC.

“With it being less than a month since the national elections were held, it is understandable to adopt a wait-and-see approach before lowering or hiking interest rates,” he says.

“However, the MPC almost allowed for an interest rate cut at this meeting. If inflation rates continue to be within the MPC’s target point, home owners can expect an interest rate cut at the next meeting. But if negative risks push inflation beyond this mid-point of the target range of between 3% and 6%, the MPC has warned that interest rates will increase to moderate inflation.

“Home owners are therefore advised to enjoy these next few months of stable interest rates while paying close attention to inflation rate announcements to prepare themselves ahead of the next interest rate announcement scheduled to be made on 18 July,” Goslett advises.

For the housing market, Goslett believes the stable repo rate is likely to allow the opportunity for market activity to pick up after the elections. He remains optimistic for long-term house price growth. On the other hand, the slowed rate of rental inflation SA has experienced over the last year has had the positive effect of subduing the overall inflation rate.

“Should rental prices inflate along with property prices, interest rate hikes will also become more probable in the future,” Goslett says.

Herschel Jawitz, chief executive of Jawitz Properties, says the decision to keep interests rates at the same level indicates the continued impact of the political and economic challenges facing the country

“There is very little business and consumer confidence and clearly the Reserve Bank is not yet confident enough to drop interest rates in the face of a dismal economy and inflation that sits comfortably in the mid-range of the bank’s target, and has for some time now. Factors such as Eskom, a vulnerable exchange rate and ratings agency caution show we are still paying a high price for the mismanagement of the country by the government over the past nine years.

“There was very little expectation of a rate cut by consumers so the decision will have no impact on the residential market in terms of buyer demand. Current buyer demand has less to with the pressures on disposable income than it does with consumer confidence. An improvement in consumer confidence will be the start of the recovery of the residential market and the forthcoming cabinet announcement will be a key marker for the country.”