LOW HOME LOAN RATE FUELS PROPERTY MARKET

It's unchanged! The lowest home loan interest rate in 50 years is retained by the South African Reserve Bank. It's the steady stimulus needed by that key sector of - and major contributor to - the economy:  Property.

The property landscape in South Africa is one of the few that is alive and well, largely due to the low rate of interest charged on home loans. This past week, it was announced that the repo rate had been kept at 3,5 percent, which translates into the commercial banks' prime lending rate remaining at the attractive five-decade low of 7 percent.

Retention of the interest rate by the SA Reserve Bank Governer, Lesetja Kganyago, wasn't a surprise for most economists - Kganyago said it was a unanimous decision by the Monetary Policy Committee (MPC). This is the seventh consecutive time the MPC has opted to keep the repo rate on hold.  Kganyago says despite continued upside risks, the MPC expects the inflation rate to stay close to the midpoint of the inflation target. He said the bank had revised its GDP growth forecast upward for this year, while its forecast for fixed investment has also been revised up but remains constrained: "We expect the economy to grow by an upwardly revised 5.3% this year [from 4.2%), despite the much larger negative effect on output than was previously estimated from the July unrest." He added, "GDP is expected to grow by 1.7% in 2022 [down from 2.3%] and by 1.8% in 2023 [down from 2.4%]."

How does the low interest rate translate into action in the property market? Myles Wakefield, CEO of Wakefields Real Estate, says, "It's good news of course, because it not only gives existing homeowners some financial breathing space, but opens the door to those entering the property market. The general consensus among economists is that the SARB needs to avoid interest rate hikes this year, even if monetary policy is extremely accommodative, as the economy is still fragile. There is an expectation that rates will be increased by the start of next year."

The volume of sales and rentals in Wakefields Real Estate offices throughout Kwazulu-Natal are a good reflection of a stable and, in certain price bands, lively property market. Property in the low to mid price ranges in all suburbs is the most active price band, and the first-time homeowner market is certainly growing. Realistically priced properties are selling within the expected time frame, and there's high demand in the above price ranges.  

It's been an unimaginably tough year for so many South Africans, with everything from the pandemic to the slow vaccination roll-out to unrest impacting dramatically. The low interest rate has been one of the few bright lights which has provided either relief or hope or both. For those able to continue repaying their bonds at the original higher rate, they'll be paying them off far sooner; for others with financial constraints, this has enabled them to keep up with their home loan payments.  Those who might normally have rented a property, have discovered that a monthly home loan repayment could be equivalent to a rental - this has fuelled home buying over renting, and caused some disruption to the buy-to-rent market.  

"For the property market, a low interest rate is a major driver," says Wakefield. "Put that together with the banks' willingness to extend home loans to qualifying buyers, and it's a recipe for a positive property market with the major upside of more South Africans owning their own homes."