Real Estate Investor Magazine South Africa August 2015 | Page 29

FINANCE

Rising Interest Rates
How the rate hike impacts the property market

P

otential home owners will now have to dig
deeper into their pockets to pay for a home
loan following South African Reserve Bank
(SARB) Governor, Lesetja Kganyago’s, announcement
that interest rates will increase by 25 basis points, from
5.75% to 6%. The prime lending rate increased to 9.5%.
Consumers are already having to deal with the
rising cost of living for food, fuel and electricity tariffs
causing household disposable income to dwindle.
This is in addition to transport cost increases, higher
personal income tax for top earners and a 20%-40%
hike in the transfer duty at the R2.25 million-end of
the housing market.
This rate hike can negatively impact the residential
housing market. “Many consumers are already dealing
with elevated levels of debt. The repayment on a R1
million home loan over a 20 year period will now
cost the homeowner an additional R163 per month,
which adds up to an extra R1956 per year. Housing
affordability will therefore become more constrained
for prospective homebuyers as a result of this latest
rate increase,” says Kay Geldenhuys, Ooba’s Property
Finance Processing Manager.
Adrian Goslett, CEO of RE/MAX Southern Africa
urges homeowners and potential buyers to continue
focusing on paying down their debt and building
up their savings. Future rate hikes will impact on
affordability levels and aspirant homeowners will need
to be prepared for that.
However, the FNB House Price Index’s 5.2% yearon-year June growth rate reflects a well-balanced and
rational residential market whose growth has gradually

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cooled over the past year and a half. There are various
signals of a more conservative home buying attitude in
the market emerging, with the high end having slowed,
a smaller percentage of households upgrading to
better homes, and a declining percentage of the more
financially limited first time and single-status buyers.
According to John Loos, Economist and Property
Strategist at FNB, “Household credit growth, too,
shows little in the way of ‘crazy’ behaviour, and is only
just above 3% year-on-year according to the monthly
SARB figures.”
Global macro-economic factors that influenced
Kganyago’s announcement include the uncertainty
relating to the debt crisis in Greece, the sharp decline
in equity prices in China and the predicted rate hike
in the United States later this year. Locally, he cited
the electricity supply constraints and weak business
and consumer confidence as contributing factors to a
cautious domestic growth outlook.
Meanwhile, improved growth is predicted for South
Africa’s non-bank lending sector for the second half
of 2015. “This outlook is as a result of the weakening
economy, which is causing South African banks to
continue to tighten their lending restrictions. “This is
in turn resulting in many high net worth individuals
and property investors approaching alternate lenders
to obtain loans,” says Gary Palmer, CEO of Paragon
Lending Solutions.

RESOURCES
Ooba, RE/MAX, FNB Property Barometer,
Paragon Lending Solutions
AUGUST 2015 SA Real Estate Investor

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