Navigating The Property Market Amid Interest Rate Challenges

South Africa's property market is undergoing a transformative phase marked by an intriguing interplay of factors. The nation's real estate landscape, despite weathering a series of interest rate hikes, continues to display resilience and potential for buyers and sellers.

The decision by the South African Reserve Bank's Monetary Policy Committee (MPC) to raise interest rates ten times since 2021 has been a headline-making move, resulting in the current prime lending rate of 11.75%.

Despite these financial headwinds, property prices have maintained a relatively steady trajectory. With the prime interest rate stable, the banks committed to lending, according to BetterBond; and consumer inflation hovering around 5.4%, a 20-month low, an intriguing window of opportunity opens for astute buyers.

However, the impact of interest rate hikes on property sales cannot be ignored. The property market has shifted significantly from a seller's market to a buyer's market recently. The days of rapid property sales and competitive bidding wars seem to have taken a back seat as demand softens in response to reduced affordability.

The correlation between interest rates and buyer behaviour also becomes evident. As interest rates rise, the number of potential buyers decreases, leading to decreased demand for properties. Consequently, sellers face the challenge of setting realistic prices and potentially experiencing extended waiting periods before closing deals if they don't seek the advice of a qualified real estate agent and overvalue their properties.

While all regions in South Africa have felt the impact of interest rate hikes, the Western Cape emerges as an intriguing outlier. Mike Greeff, CEO of Greeff Christie's International Real Estate, notes that the demand for property in this region remains relatively robust, even in the face of economic headwinds. Semigration plays a pivotal role here, as well as the promise of strong local governance and municipal services.

"Regardless of the impact of the colder months on the market, we've seen an encouraging 35% increase in sales from last month, signalling positive momentum," Greeff notes. "This underscores the market's ability to adapt and evolve in the face of these challenges."

Despite the market's uptick, Greeff acknowledges the strain further interest rate hikes will place on South African consumers. With high electricity prices, petrol prices, and municipal rate increases already burdening households, an additional rate hike could lead to more bond payment struggles, increased defaults, and added pressure on tenants and businesses alike.