South Africa’s property sector warns that another interest rate hike could further weaken demand and delay the recovery of the housing market.
The warning comes ahead of the South African Reserve Bank’s (SARB) Monetary Policy Committee meeting, where a decision on interest rates is expected this week.
Seeff Property Group chair Samuel Seeff has urged the Reserve Bank not to increase rates, arguing that the recent rise in inflation is likely to be temporary, while the impact of higher borrowing costs could continue to hurt consumers and businesses.
“Higher interest rates have a longer-lasting impact on the economy and property market,” Seeff said.
Although there have been signs of improved activity in parts of the property market, Seeff said transaction volumes remain below expectations, with activity still about 18% lower than projected levels.
The sector has been under pressure as interest rates increase the cost of home loans, reducing affordability for buyers and placing strain on household finances.
The slowdown in property activity is not only affecting buyers and sellers but is also putting pressure on small businesses that depend on the housing market.
According to Seeff, high interest rates are making it increasingly difficult for first-time buyers to enter the property market.
He said monthly registered property transactions have declined from about 22,000 in 2021, when interest rates were around 7.25%, to approximately 18,000 currently.
The affordability challenges are also affecting younger buyers, with data showing that 25% fewer people aged between 26 and 35 are purchasing property.
First time buyers’ share of home loan applications has also declined from 56% to 46%.
What this means for small businesses
Construction companies, building contractors, electricians, plumbers, painters, furniture suppliers, hardware stores and renovation businesses could experience weaker demand as households delay property purchases and home improvement projects.
For small businesses operating in the property value chain, fewer transactions can mean fewer contracts, reduced income opportunities and slower expansion.
Estate agencies and property service providers may also feel the impact as fewer buyers qualify for home loans and property transactions take longer to complete.
FNB Property Finance said geopolitical tensions, including the Middle East conflict, together with higher interest rates, have temporarily slowed the expected recovery of South Africa’s property market.
Stephan Potgieter, CEO of BetterHome Group Mortgage Origination and BetterBond, said global uncertainty could delay interest rate relief for homeowners.
“Global uncertainty may delay, but not derail, interest rate relief,” Potgieter said.
He said while South Africa’s economic conditions have improved, renewed tensions in the Middle East could keep inflation risks elevated and delay relief on monthly bond repayments.
“Escalating tensions in the Middle East could mean homeowners will have to wait longer for relief on their monthly bond repayments,” Potgieter said.
With economists divided on whether the Reserve Bank should keep interest rates unchanged, the MPC’s decision on Thursday will be closely watched by homeowners, prospective buyers and businesses across the property sector.
