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South African Property Market Resilient Amid Cautious Buyers and Rate Hikes

Published by
WIlliam Dube

South Africa’s residential property buyers continue to exercise caution in the face of the anticipated easing of interest rates and the commitments made during the recent budget speech. The South African Reserve Bank (SARB) increased interest rates by 25 basis points in January, raising the repo rate to 7.25% and the prime interest rate to 10.75%. This move is part of the SARB’s ongoing efforts to combat escalating inflation.

  1. South African property buyers remain cautious despite the expected easing of interest rates and commitments made in the recent budget speech, causing slowed sales volumes in the residential market.
  2. The market remains resilient with strong rental demand, particularly in the upper segment, and a robust high-end market in the Western Cape due to semigration and foreign investments.
  3. The medium-term outlook for the property market depends on the successful implementation of budget provisions, such as infrastructure and law enforcement upgrades, as well as the performance of the national economy and global economic trends.

Antonie Goosen, Principal and Founder of Meridian Realty, noted that this is the eighth consecutive hike, albeit smaller than expected. Some economists had predicted a 50-basis point increase. Most indications suggest that the rate-hiking cycle may be nearing its end. The SARB is set to reconvene at the end of March, with the majority of economists anticipating another 25bp hike, which would signal the cycle’s peak.

Despite this, Goosen explained that rental demand remains strong, primarily limited to buyers in the upper segment market who can purchase properties to rent out as a source of passive income. First-time buyers and those in the lower to middle segments of the market have been most affected by the interest rate hikes, causing them to think twice before investing in property.

Although property sales volumes have slowed, investments and semigration continue to increase. Goosen added that the growing stock of properties on the market would offer more choices for potential buyers, making it harder for sellers to demand the prices they did during the property boom fueled by exceptionally low interest rates two years ago.

In contrast, the Western Cape continues to see high prices due to limited supply. Goosen remarked, “We all know there is still healthy competition between banks, competing on attractive loan terms with credit-worthy, potential buyers.” He explained that those who can afford it may be able to secure 100% bonds or very favorable terms to make purchasing property easier.

Overall, the residential market remains stable, but buyers are being cautious and waiting to see the government’s actions following the February budget. As Goosen stated, “The actions of the government will speak louder than words.”

The budget did not contain major tax proposals, thanks to more efficient tax collection by the South African Revenue Service (SARS). A silver lining for first-time property buyers is the 10% increase in the transfer duty bracket, meaning that properties worth less than R1.1 million will not be subject to transfer duties. This change is expected to revitalize the lower-end segment of the market.

Additionally, Finance Minister Enoch Godongwana announced a tax rebate of 25% (capped at R15,000) of the cost of new and unused solar photovoltaic (PV) panels. Goosen pointed out that this tax rebate would likely only benefit higher-income households, as the initial expense for solar panels remains out of reach for most South Africans. However, he acknowledged that homes equipped with solar technology would have an edge over other properties on the market.

Goosen also highlighted the Treasury’s proposed R254 billion total debt-relief arrangement for Eskom, which could impact investor perceptions of South Africa and the confidence of the local market in property investments. Despite the slowdown in sales volumes and buyers’ increased caution, the property market is expected to remain resilient.

Rentals for entry-level to mid-level properties are projected to continue rising, with wealthy investors taking advantage of the boom by purchasing property as an investment. The high-end market, particularly in the Western Cape, will stay robust due to semigration and the return of foreign property investments.

Sales in other provinces will hinge on effective marketing and appropriately priced properties as buyers seek value in their purchases. Goosen emphasized that the medium-term outlook for the property market relies on the implementation of the budget speech’s provisions, including upgrades to infrastructure and law enforcement.

In summary, the South African property market remains stable despite cautious buyers and slowing sales volumes. Factors such as the anticipated easing of interest rates, a more efficient tax collection system, and the government’s commitments in the budget speech have not yet alleviated concerns among potential investors.

The market’s resilience will depend on various factors, including the successful implementation of budget provisions, the performance of the national economy, and external factors such as global economic trends. As South Africa’s property market navigates these challenges, it will be crucial for stakeholders to stay informed and adapt to the changing landscape.

WIlliam Dube

William Dube is a finance and economic news expert with over 10 years of experience in economic anaylsis, financial product assessment and market analysis. With a numerous certificates from prestigious universities including but not limited to Yale University and the University of Pennyslivenia. William specializes in providing insightful news developments in South Africa and commentary on investment strategies, risk management, and global economic trends. You can contact him on william@rateweb.co.za

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Published by
WIlliam Dube

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