As we approach what will likely be another steep rate hike for consumers and homeowners, Seeff Property Group chairman Samuel Seeff warns that another shock from the rate hike will be disastrous for the property market and the economy.
Rate hikes should be kept to a minimum, warned Seeff, who believes the early rate hikes in the first half of this year were premature and that if the Reserve Bank had delayed, there would now have been some leeway to take the blow to consumers. to catch.
Just as the economy began to recover from the devastation of the Covid lockdowns, it has now fallen back below pre-pandemic levels according to StatsSA’s second-quarter GDP data, he said.
Seeff said the country is now seeing the effect on the economy of rising inflation, accelerating interest rate hikes and tax cuts, which appear to be increasing in frequency and duration.
The higher inflation is not the result of increased credit or consumer spending, but of external factors, including the impact of the Russian war in Ukraine on rising food and fuel prices, but Seeff said consumers and homeowners are being punished with higher interest rates.
On top of higher food and fuel prices, the interest rate hikes are taking money out of consumers’ pockets that they could have put into the economy. Consumers and homeowners have had to absorb an additional 2% increase since November, with another rate hike this month, he said.
The impact on a middle-class home is that homeowners now have to pay an additional R1,244 per month on an average loan of R1 million over twenty years, as their repayments have increased from R7,753 in November (at 7%) to R8,997 (9%) in July.
For entry-level homeowners with a R650,000 loan, the impact is an additional R809 per month (increased from R5,039 to R5,848), and for an upper-middle class homeowner with a R2 million loan, it is an additional R2,489 per month (increased from R15,506 to R17,995).
Seeff said the housing market has been making a significant economic contribution since mid-2020. Particularly where the economy as a whole shrank in the second quarter, the economic sector, including real estate (Finance, Real Estate and Business Services), still realized a growth of 2.4%.
He added that a key benefit of the low interest rates of the past two years is that it enables significantly more first-time buyers to buy their own homes with zero deposit and cost-inclusive home loans.
For now, the market remains favourable, well supported by bank lending conditions and deposit requirements still below 10%.
Lightstone data also points to a stable market, with transaction volume declining only marginally for the first half of 2022 compared to 2021 (129,642 vs 130,102), while value rose slightly (R156,346,807,127 vs R153,240,035,200) .
Seeff says there has been a surge in the super-luxury sector above R5 million, especially in the Cape, where Seeff has closed several high-value sales, the most recent being R72 million for a luxury apartment at The Aurum in Bantry Bay.
Notably, this sale has increased the fringe per square foot to over R180,000.
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