As we approach what is likely to be another steep rate hike for consumers and homeowners, Samuel Seeff, chairman of the Seeff Property Group warns that another rate hike shock will be dire for the property market and economy.
Rate hikes must be kept to a minimum. Seeff believes the early rate hikes in the first half of this year were premature and had the Reserve Bank held off, it would have allowed some leeway now to cushion the blow for consumers.
Just as the economy commenced recovering from the devastation of the Covid lockdowns, it has now slumped again to below the pre-pandemic level according to the second quarter GDP data from StatsSA.
Seeff says we are now seeing the effect on the economy of rising inflation, the accelerated rate hikes and load shedding which appears to be increasing in frequency and duration.
The higher inflation is not due to increased credit extension or consumer spending, it comes as a result of external factors including the impact of the Russian War in Ukraine on rising food and fuel prices, yet Seeff says consumers and homeowners are being punished with higher interest rates.
On top of higher food and fuel prices, the rate hikes take money out of consumer wallets that they could have spent in the economy. Consumers and homeowners have had to absorb an additional 2 percent increase since November with another rate hike due this month.
The impact on a mid-level home is that homeowners now have to pay an additional R1,244 per month on an average loan of R1 million over twenty years as their repayments increased from R7,753 in November (at 7%) to R8,997 (9%) in July.
For entry-level homeowners with a loan of R650,000, the impact is an extra R809 per month (increased from R5,039 to R5,848) and for an upper middle-class homeowner with a loan of R2 million, it is and extra R2,489 per month (increased from R15,506 to R17,995).
Seeff says the residential market has been a significant economic contributor since mid-2020. Notably, where the economy as a whole contracted in the second quarter, the economic sector which includes real estate (Finance, Real Estate and Business Services) still achieved growth of 2.4 percent.
He says further that a significant benefit of the low interest rate of the past two years has been that it enables significantly more first-time buyers to purchase their own homes with zero-deposit and cost-inclusive home loans.
For the time being, the market remains favourable and well supported by bank lending conditions and deposit requirements which are still under 10%.
Lightstone data also points to a steady market with the volume of transactions for the first half of 2022 only down marginally compared to 2021 (129 642 versus 130 102), while the value was up slightly (R156,346,807,127 versus R153,240,035,200).
Seeff says there has been a strong uptick in the super luxury sector above R5 million, especially in the Cape where Seeff has concluded several high value sales, the most recent being R72 million for a luxury apartment in The Aurum in Bantry Bay. Notably, this sale has taken the Rand per square metre up to over R180,000.