Hanging by a thread: Many South Africans have been trying to hold on to their homes amid rising interest rates. Picture“ Harper van Mourik/UnSplash
Last year was a challenging year for the South Africa's property market, grappling with high inflation and interest rate hikes.
Now, experts foresee a transformative year ahead, with significant opportunities but also some challenges on the horizon.
As South Africa braces for an election year, market fluctuations - whether good or bad - may be inevitable, they say.
However, easing inflation and potential interest rate drops - although unlikely to be significant and the timing under debate - do present opportunities for those with a longer-term perspective.
Tony Clarke, MD of the Rawson Property Group, says there is a glimmer of hope for the market with the stabilisation of inflation, both locally and globally. This presents a key turning point after a hard run, he believes.
Clarke anticipates a slow decline in interest rates from mid-2024, sparking a resurgence in buyer confidence and a surge of pent-up demand, particularly among first-time buyers.
Others believe that the first cut could come as soon as later this month, March 27, when the SA Reserve Bank is due to announce the new interest rate. This would be the first decrease since the country’s interest rates sank to single-digit figures before subsequently rising consistently to reach 11.75%
"While escalating interest rates hindered property demand in 2023, stabilisation will reignite the market, especially for those sensitive to interest rate fluctuations," says Clarke.
The lure of excellent value, a consequence of sluggish house price growth, is not lost on international investors, expected to boost demand in luxury markets.
However, Clarke advises caution, noting potential slumps in luxury segments as investors await election outcomes.
Yet, positive election results could trigger a wave of optimism, positively influencing the strength of the rand, attracting both local and foreign investors.
The impact of elections might extend beyond market dynamics and Clarke says elections could influence semigration trends, with possible shifts in coastal region demand depending on election outcomes.
Meanwhile SA Home Loans (SAHL) CEO, Rob Kelso, says the interest rate cycle has been the dominant factor with the most significant cumulative tightening cycle in more than a decade and the most rapid rise in interest rates in more than two decades.
Yet, despite the elections, load shedding and geopolitical factors, the economic signals for 2024 (and even more so 2025) are increasingly positive. “Notably, the consumer price index (CPI) has moderated, and interest rates have likely peaked, and the consensus is for a round of steady, moderate rate cuts from mid-year,” says Kelso.
This will provide some relief for consumers, with improved affordability and increasing confidence to access credit.
However, the possibility of a small drop in the ever-rising interest rate at the end of this month could for some be a matter of too little, too late.
Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, warns consumers should not to expect any dramatic rate cutting cycle to begin.
“Many economists predict that at best, interest rates will only come down by 1% over the course of the year, which will still leave us at a higher rate than we were pre-Covid.”.
Goslett add though that even a 0.25% drop in interest rates can go a long way towards relieving some of the financial pressure many households are undoubtedly facing.
Although property market conditions are unlikely to be too largely impacted if interest rates are cut by 0.25% at the next meeting, Goslett is still rooting for this outcome, as it will be the first step towards greater growth within the property sector as a whole.
“Even if we see one or two cuts during the year – which will bring some much-needed financial relief – interest rates are likely to remain high for the
Herschel Jawitz, CEO of Jawitz Properties, echoes a note of cautious optimism for 2024. In an election year, he acknowledges the prevalent uncertainty but urges stakeholders to look beyond the noise.
Jawitz emphasizes several factors contributing to the positive outlook.
Notably, inflation is on a downward trajectory, and interest rates are expected to follow suit, potentially easing the financial burden on homeowners and buyers.
Banks, despite economic sluggishness, are actively lending, offering competitive rates and steady approval processes.
In the mid-market price range, where demand remains steady, Jawitz observes that sentiment, rather than interest rates, drives property purchases.
First-time buyers continue to play a significant role, constituting 48% of all mortgage applications, showing resilience in the market.
Jawitz advises against trying to time the market, emphasizing the current buyer's advantage. In a buyer's market, sellers need to align their prices with market realities. He notes that sellers, while facing potential price adjustments, also have opportunities to make strategic purchases in the same market.
Jawitz anticipates that even with potential interest rate reductions in 2024, the rental market will remain strong, offering improved yields for buy-to-let investors.