As we approach what is likely to be another sharp rate hike for consumers and homeowners, Samuel Seeff, Chairman of Seeff Property Group, warns that another rate hike shock will be dire for the housing market and the economy.
Rate hikes should be kept to a minimum, cautioned Seeff, who believes the first rate hikes in the first half of this year were premature and if the Reserve Bank had dragged its feet, it would have allowed wiggle room now to cushion the blow to consumers.
Just as the economy began to recover from the devastation of the Covid lockdowns, it has now plunged back below the pre-pandemic level according to StatsSA’s second-quarter GDP data, it said.
Seeff said the country is now seeing the effect on the economy of rising inflation, accelerated rate increases and load shedding, which appear to be increasing in frequency and duration.
The higher inflation is not due to increased credit extension or consumer spending, but is due to external factors, including the impact of the Russian war in Ukraine on rising food and fuel prices, but Seeff said that consumers and homeowners are being punished with higher interest rates.
In addition to higher food and fuel prices, rate increases take money out of consumers’ wallets that they could have put into the economy. Consumers and homeowners have had to absorb an additional 2% increase since November, with another rate hike expected this month, he said.
The impact on a mid-tier house is that owners now have to pay an additional R1,244 per month on an average loan of R1 million over twenty years, as their payments increased from R7,753 in November (at 7%) to 8 rand .997 (9%) in July.
For entry level homeowners with a loan of R650,000, the impact is an additional 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 an extra R2,489 per month (increased from R15,506 to R17,995).
Seeff said that the residential market has been a major economic contributor since mid-2020. In particular, 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%.
He added that a significant benefit of the low interest rate of the past two years has been that it allows many more first-time buyers to buy their own homes with no-deposit, fee-included mortgages.
At the moment, the market remains supportive and well supported by banks’ credit conditions and deposit requirements that are still below 10%.
Lightstone data also points to a stable market, with transaction volume for the first half of 2022 only marginally lower compared to 2021 (129,642 vs. 130,102), while value increased slightly (R156,346,807,127 vs. to R153 240 035 200).
Seeff says there has been a strong uptick in the super-luxury sector above 5 million rand, especially in the Cape, where Seeff has concluded several high-value sales, most recently for 72 million rand for a luxury at The Aurum at Bantry Bay.
In particular, this sale has brought the rand per square meter to over R180,000.