Property market booms as medium-term outlook keeps repo rate below 4%

The residential property market in South Africa continues to strengthen, as interest rates remain at record-low levels after a year in which the repo rate remained below 4%, says Carl Coetzee, CEO of BetterBond.

"With all eyes on the South African Reserve Bank this week ahead of the third repo rate announcement for 2021, the good news is that it is unlikely that the repo rate will climb above 4% for a while yet," said Coetzee.

Rates will eventually start to increase, but the prime lending rate is not going to hit double digits in the near future. This means that aspirant home buyers, especially first-time purchasers, still have an opportunity to make the most of the favourable lending environment."

"After a year of historic-low interest rates, buyer activity continues to be robust. BetterBond has seen a steady uptick in bond applications, with a 44% year-on-year increase in March. Close to 70% of these are from first-home buyers, which bodes well for the resurgence of the property market," says Coetzee.

The current prime lending rate of 7% - a result of five consecutive repo rate cuts last year - means that many homebuyers have been able to afford up to 30% more than they could in January 2020, when it was at 10%. "Some economists are saying that it's unlikely that the repo rate will increase at all in 2021, with Dr Roelof Botha, economic adviser to the Optimum Group, saying that given that inflation is at the lower end of the target range, there could even be room for a drop of at least 100 basis points."

Coetzee adds that while the South African Reserve Bank had projected two interest rate hikes of 25bps each in the second and fourth quarters of the year, SARB governor Lesetja Kganyago also recently indicated that an "accommodative" approach is more likely to support the economy for as long as possible.

"It would make sense to keep the repo steady at or below 4% for as long as possible, for the effects of the lower lending rate to have the desired impact," said Coetzee. "Furthermore, even if the repo rate does increase by 0.5% later in the year, the prime lending rate will still be at its lowest in five decades. It's unlikely that consumers will see a prime lending rate of more than 10% for a few years yet."

"Any increase announced this week would simply be a reminder that interest rates will start to climb, albeit slowly, and that homeowners should plan accordingly by putting money aside, or paying more into their bond now while the interest rate is more favourable," says Coetzee. "It is also a prompt to potential buyers to apply for a bond while interest rates are at a record low."

article courtesy Private Property and Betterbond