INTEREST RATES LIKELY TO HAVE MINIMAL EFFECT ON PROPERTY PRICES.
Category News
Despite the half a percent increase in interest rates, buying conditions in the residential property market in South Africa remain positive says Herschel Jawitz, CEO of Jawitz Properties.
There is no doubt that buyer activity in the market remains firm even with the latest rate increase. Property prices are offering good value relative to the peaks of 2007 and 2008. Combine this with interest rates that are still at historic lows and it’s easy to see a more positive picture than is painted by the economists.
There is no doubt that South African consumers are under pressure and will continue to be so for some time however the increase in activity in the market is most noticeable in the lower and middle market where debt and price and interest rate sensitivity is highest. The answer may be in terms of a shift in spending away from short term retail spending and into residential property.
Residential market conditions are also fueling a more sustained recovery in property prices which recorded real growth in prices in 2013. In the metro areas, there is a shortage of stock at all price levels. With more buyers and less stock, prices are moving upwards – even if gradually. Reasons for the shortage include many potential sellers waiting for the market to improve further before they decide to sell; less financially distressed sellers and sellers who are reluctant to sell until they have found a property to buy.
As a result, properties are selling quicker than before with some sales happening before showday, a market phenomenon not seen for some time. Buyers are realising that the market has shifted and that the power sits somewhere in the middle between buyers and sellers. More and more buyers in the market are putting in better offers as a result of losing previous properties with ‘low-ball’ offers. ‘I wouldn't call this a buyer stampede but there is a sense that buyers are starting to have a fear of loss’. Similar conditions are being experience in the US residential market which is in part helping drive a recovery in the US economy.
There are still challenges ahead if or when rates increase again in addition to a noisy election and a global economy in flux. In addition, banks are easing their lending criteria in some areas but remain cautious. These factors, while completely out of our control, may impact on consumer confidence which ultimately may be the most important determinant of where the residential property market goes. If consumers feel that it is time to adopt a wait and see approach, then the current activity may soften a bit. There will always interest rate cycles, elections and fluctuating exchange rates and we in South Africa have learnt – despite some of the pessimism, that there is life afterwards!
Author: Jawitz Website
