Beyond the MPC Decision
Following the latest South African Reserve Bank MPC announcement, Herschel Jawitz shares his perspective on the interest rate decision and what it means for the South African residential property market.
"The decision to raise interest rates on the back of higher inflation and a slowing economy means that consumers will have to take some short to medium term pain until rates flatten and start to fall again. From a residential property perspective, higher interest rates will impact affordability especially for first time buyers who are a very important part of the residential market. A 0.25% increase in rates means that a million-rand mortgage repayment will increase by R168 per month, while this is not substantial, it is the second rate increase this year and comes on top of increased petrol prices.
According to the latest FNB Property Price index report, house price growth nationally has moderated to 4,9% in August from 5,3% in July and 6% earlier in the year. The increase in rates may further moderate house price growth which still sits marginally above inflation.
However, the news is not all bad. Market activity remains firm, with demand from buyers outstripping supply, making house price growth more resilient even with the latest rate increase. Bank lending is also firm with rate concessions from the banks, who are also competing for business remaining very competitive.
The Reserve Bank has remained consistent in its approach to inflation and interest rates which may not always be the popular decision and will require some pain for longer term gain. In order for homeowners to see consistent real increases in the value of the property which for many is their most valuable asset, inflation has to come down on a sustainable basis."
For now, the residential property market continues to show resilience despite the changing rate environment.