Property remains resilient as interest rates continue to rise

Recently, repo and interest rates have gone up by a considerable margin. This is putting pressure on the market and creating a window of uncertainty and volatility. Because property experts were expecting this, the surprising revelation is that despite all the odds, the property market remains as resilient as ever.

We take a closer look at what is driving this recent hike, why the market remains resilient, and provide calculations on the latest average rates one will be expected to pay.

Accelerating factors

While the interest hike has set the repo rate up by 75 basis points to 5.5%, a more considerable hike in the real estate market was expected to deter demand. The reality set forth by a weaker Rand sent the interest rate up to 7.4%, the highest recorded rate since the housing crunch of 2009. It is expected to go up again quite aggressively in September and November, with prime reaching its pre-pandemic level of 10% by the start of 2023.

With lockdown now fully behind us, the return to normalcy has been one of the driving factors behind this. Yet even though homeowners will now need to adjust their budget to accommodate these rates, the property market remains in high demand, even above pre-pandemic levels.

Other factors such as geopolitical tensions in Europe, which lead to higher fuel costs and, in turn, hiked up the price of food, have doubled down the pressure on homeowners who are expected to foot the bill at the end of the day.

The resilience of the property market

Despite trudging through all of these hikes, the interest rate remains favourable to the property market. Beyond this, mortgage rates remain strong thanks to easing rates, a lower expected deposit, and almost 100% bond approval for first-time buyers. These conditions, albeit in a time of volatility, have not deterred potential homeowners from taking advantage of a steady buyer's market.

Property firms throughout the country, including Homes of Distinction, continue to see strong sales in the upper end of the market. Cape Town, in particular, has witnessed the signing of several multimillion Rand property sales concluded. As such, and following two years of successive growth, we expect to see a strong and steady property market.

Sellers may be expected to remain mindful of these recent pressures but should not be deterred from opportunities to sell. This flat growth in price may be good news for the buyer's market but also means that a housing bubble such as 2007-8 will not crash the market as before.

Bond cost calculations

The South African Reserve Bank (SARB) calculated the following home loan rates. Please visit their site for a more accurate breakdown of your costs. A home loan over twenty years, estimated at prime, will now cost you the following: 
 

• A R750,000 bond - up R358 (an increase on repayments from R6,390 to R6,748)
• A R900,000 bond - up R429 (an increase on repayments from R7,669 to R8,098)
• A R1 million bond - up R476 (an increase on repayments from R8,521 to R8,997)
• A R1,5 million bond - up R715 (an increase on repayments from R12,781 to R13,496)
• A R2 million bond - up R954 (an increase on repayments from R17,041 to R17,995)
• A R2,5 million bond - up R1,191 (an increase on repayments from R21,302 to R22,493)

To contact one of our Real Estate Property Practitioners, follow the link: https://www.homesofdistinction.co.za/agents/

Homes of Distinction CC holds a Fidelity Fund Certificate issued by the Property Practitioners Regulatory Authority.