When is South Africa's interest rate likely to increase?

Interest rates have remained steady for the first quarter of 2020 - here's what the industry experts have to say about possible increases on the horizon. 

The South African Reserve Bank decision to keep the prime lending rate at 7% came as a great relief to many cash-strapped consumers. Property experts, on the other hand, have expressed little surprise at this outcome.

"While economists seem to agree that the next move in the interest rate would be a hike, there is no agreement on the likely timing of the first increase in rates," says Dr Andrew Golding, chief executive of the Pam Golding Property group. 

The Reserve Bank Governor has indicated that the Bank will maintain its current accommodative monetary policy stance to support the economic recovery as long as inflationary pressures remain contained.

Golding says, "Economists' expectations range from the first hike possibly occurring in late 2021 to rates remaining unchanged throughout next year (2022) with the first hike in early 2023. Given the uncertainty surrounding the likely path of the pandemic and its likely impact on the global economy, the lack of agreement on the timing of the anticipated interest rate hike is understandable.

"However, the median forecast from the Reuters' survey points to the first hike of 25 basis points in the first quarter of 2022, followed by a second similarly modest hike in the third quarter.

While the rand has strengthened since the previous MPC meeting in March - gaining 6% against the dollar, according to FNB, bringing it back to pre-pandemic levels - and with domestic inflation remaining comfortably within the Bank's target range, there are concerns about the inflation outlook in the longer term.

A double-digit increase in electricity prices and soaring global commodity prices are expected to trigger second-round inflationary pressures in the coming months. 

"The prospect of slightly higher than expected inflation and a marginally stronger than expected economic recovery has prompted some economists to shift their forecasts of the first hike in interest rates from early-2022 to late-2021." 

While interest rates may not be changing any time soon, Tony Clarke, MD of the Rawson Property Group says property trends are always shifting, particularly as buyers redefine their needs under the "new normal". 

"Realistically, we don't expect interest rates to change just yet," says Clarke, "When increases do start happening - possibly towards the end of this year, or early in 2022 - the climb is likely to be very slow, creating little immediate change to the property market."

Both Clarke and Craig Mott, Cape Town Regional Sales and Commercial Manager for the Rawson Property Group share their take on what this means for the property industry, highlighting major trends to keep an eye on.

More time at home

According to Mott, the massive shift towards remote work has directly influenced buyer priorities when looking for the "perfect home".

"People are spending a lot more time at home these days," he says. "Buyers are looking for properties that can make that time as comfortable - and productive - as possible. That means more than just home offices. We're talking larger living areas, more spacious gardens, functional outdoor areas - the whole package."

Freehold vs Sectional Tile

In their search for more space, Mott says more and more buyers are turning to freehold properties over sectional title - the opposite of pre-pandemic trends.

"Freehold homes tend to offer more space, more privacy, and more freedom to renovate and make changes," he says. "Lock-up-and-go is also less essential with travel restrictions keeping most of us grounded."

Multi-generational living  

Clarke says the multi-generational living trend is becoming more common, contributing to the demand for larger properties and properties with multiple dwellings.

"Making ends meet on a fixed or limited income has become extremely difficult in the current economic situation," he says. "As a result, we're seeing a lot of young adults moving back in with their parents, and a lot of elderly parents moving in with their kids."

Decentralisation 

Location is just as important to buyers as ever, but Clarke says lifestyle has become a greater priority than proximity to major business hubs.

"A lot of buyers are moving away from major cities in favour of small-town life, particularly along the coast," he says. "These so-called Zoom Towns are really booming as the popularity of remote work and distance learning increase."

Residential property

While 2020 was characterised by lowered interest rates and ample supply of properties on the market, creating favourable market conditions for buyers who wasted no time in snapping up properties, 2021 has brought about stock shortages to much of the country.

"Agents have now focused their efforts to get their hands on enough properties to satisfy demand, particularly in the entry-level market," says Clarke, "We do expect to see this dynamic shifting, however, with a wave of distressed properties due to hit the market soon. Sellers hoping to minimise competition should definitely get their properties listed as quickly as possible."

Commercial conversions

Remote work has caused an inevitable decline in the demand for commercial property, triggering a flood of commercial to residential conversions in CBDs. Mott says the result will be a number of new mixed-use buildings with shared workplace, exercise and entertainment facilities.

"It's an exciting trend that should inject new life into South Africa's cities, and provide excellent opportunities for buyers looking to 'get it all' under one roof," he says.

Stabilising demand 

While the decision to keep interest rates where they are will certainly benefit buyers, Clarke says it is unlikely to cause the same surge in market activity that the initial interest rate decreases did.

"We're expecting buyer activity to level off now that pent up demand has largely been satisfied," he says. "Demand will still be high, just unlikely to increase further."

Good timing for buyers and sellers 

It's only a matter of time before interest rates begin to climb once again. As such, both Clarke and Mott urge buyers to act sooner rather than later to benefit from the current rock-bottom rates for as long as possible.

Sellers, too, are advised to act quickly in order to tap into today's lively market.

"As interest rates increase, demand will slow and sales will become trickier," says Clarke. "It's one of those rare situations in which both buyers and sellers stand to benefit by acting quickly."