Rates hike should not be cause for irrational panic

“The 25 basis points increase in the repo rate is certainly not something the property industry welcomes,” says Mike Greeff, CEO of Greeff Properties, an exclusive Affiliate of Christie’s International Real Estate. “In terms of the role the property sector plays in the economy, the move to raise interest rates is counter-productive for the national coffers, as higher interest rates are likely to reduce the overall real estate industry sales revenues and by association, the benefits government reaps from transfer duties,” says Greeff. “With more expected hikes towards the end of 2015 and in 2016, banks will definitely tighten up on lending criteria, so the number of bond approvals and therefore, successful sales, is likely to drop,” adds Greeff.

In spite of the rise in the interest rate, however, Greeff says he does not believe there is too much cause for panic in the Cape real estate sector at this point: “Based on the historic performance of the Cape’s property market, particularly the recorded rate of growth in property values, which tends to be more positive than that recorded in other provinces, we do not expect a drastic fallout as a result of this latest 25 basis point rate hike. Instead, we are anticipating a levelling off of house price increases as predicted by FNB Property Strategist, John Loos, and certainly, rate hikes contribute to this potential plateau,” says Greeff.  “In spite of the pressures on consumers, demand for property in the Cape is likely to remain high based on the desirability of the lifestyle and location, and this is borne from research recently shared by John Loos, which indicates that fewer people emigrate from the Western Cape than from any other province,” says Greeff.

A holistic perspective

“The rates hike, however, must be put in perspective and viewed from a holistic point of view, and not from a position of irrational panic. The South African Reserve Bank has acquired a bit of room to breathe by raising the rate this month, in spite of the lower-than-anticipated inflation figures. However, with the threat of inflation growth always looming ahead, Governor Kganyago would appear to be acting pre-emptively and somewhat conservatively in an attempt to contain or slow the further growth of inflation. His motives are clearly aimed at injecting some strength into an underperforming South African economy, but until other sectors such as labour, Eskom and to a large extent, education, come to the party, the governor’s efforts alone are probably not sufficient,” says Greeff. “Given that we can be fairly sure rates will continue to rise for the next couple of years, bond holders should attempt to cut back wherever possible and attempt to pay a bit more into their bonds – topping up a payment by even as little as R200 a month on a home loan of R1 million over a 20-year period at the current rate, will knock 14 months off the term of the loan and save you R100 000,” says Greeff.