THE POSSIBLE IMPACT OF A FURTHER INTEREST RATE INCREASE ON THE RESIDENTIAL PROPERTY MARKET IS OF CON
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“Clearly, another rate increase will be felt financially by the consumer but more importantly, the real impact will be on consumer and business confidence that are already at very low levels,” he says.
Despite a slowing economy, the residential market has performed relatively well over the past few years driven by strong demand and a general shortage of stock especially in the major metros of Johannesburg, Cape Town and Durban. This has helped to ensure both nominal and real increases in property prices across the board. However, these gains have slowed down so far this year.
On a national average with slowing property prices and rising inflation, 2015 will probably deliver a decline in real growth in property prices for the first time since 2013. The major metros will still, however, offer price growth above inflation with nominal price growth expected to be between 7 and 11%. With increasing interest rates, there is a limit as to how long the residential property market can continue to outperform the economy. At some point, rising interest rates, a slow economy and low consumer confidence will have an effect on the market.
“The Reserve Bank will have to think carefully about the decision next week. The interest rate cycle has begun. However the economy still has to be front of mind otherwise the risk of further slowing in consumer spending and confidence will be high,” says Jawitz.
Author: Jawitz Website
