The latest 25 basis point increase by the Reserve Banks Monetary Policy Committee (MPC) is another blow to South Africans whose salaries are dropping while the cost-of-living is rising, experts say.
The warning signs are coming from all sectors of society, but are most prevalent in industries dealing with debt, like the property market.
According to CEO of Debt Rescue, Neil Roets, the latest hike is very bad news for South Africans who are paying off debt on property, vehicles and credit cards, warning that consumers are “hanging on by a thin thread, and there is no more room to manoeuvre”.
Data published by BankservAfrica this week shows that the real average take-home salary in South Africa declined by almost 5% in December 2022, ending an already dismal year for salaries on a bleak note.
South African households are starting 2023 on the back foot, pummeled by constant load shedding, rising food prices and looming electricity price hikes in April that threaten to exacerbate the cost of living in the country.
The latest interest rate hike, while not unexpected, will invariably add further strain, especially when households are already overindebted.
According to a TransUnion Consumer Pulse survey, even with a cutback in discretionary spending, 38% of consumers say they are still unable to pay their bills and loans in full.
Adding to the worries, analysts noted that the SARB’s tone was decidedly hawkish when looking ahead, pointing to another possible rate hike at its next meeting if upside risks are realised.
Impact on property
Yael Geffen, the CEO of Lew Geffen Sotheby’s International Realty, said that South Africans “simply aren’t coping”.
“While average salaries fell 6.9% across the country last year, on a new home loan of R2 million at the prime rate, since November 2021, monthly mortgage repayments have rocketed R4,800.”
Greg Dart, the director of High Street Auctions, echoed a similar sentiment noting that the ability to save in South Africa has become beyond the means of most people, adding that the first half of 2023 would be rough.
“Investors are likely to adopt a more conservative wait-and-see attitude, and the residential market is probably going to feel the effect of more properties coming with a much smaller pool of buyers able to commit,” said Dart.
The bottom line is that fewer South Africans are able to purchase homes, with only the wealthy being able to weather the increased cost of home loan repayments. The current hike cycle has reduced the number of first-time homebuyers in the market, and rising debt costs are forcing people to sell down.
According to Christ Tyson and Nick Pearson of Tyson Properties, houses priced under R3.5 million have been particularly hard-hit by this trend. Repayments on a loan for a property of this price have increased by R590 per month – pushing monthly repayments to R35,533.
However, different market areas are set to perform uniquely. Pearson noted that the rate hike was – for example – unlikely to stem demand or slow the more buoyant property market in the Western Cape.
Lightstone’s data has recently highlighted activity within the high-value property sector, showing that over the years, mid-value and high-value segments have carried the markets at 37% and 32%, respectively.
Samuel Seeff, the chairman of the Seeff Property Group, said that despite a smaller number of possible buyers in the market – especially those that are cash-strapped – he still expects that market to reach a semblance of stability with consistent activity.
He also added that banks continue to provide support by maintaining favourable conditions for mortgage lending.
To increase affordability for home ownership, banks are also offering higher loan-to-value (LTV).
Rate forecast
Luigi Marinus, a portfolio manager at PPS Investments, says that although the hiking cycle has continued, the 25 basis point increase is more modest than the previous hikes.
“This may be viewed as an indication that the MPC is nearing the terminal rate, but the governor was adamant that no forecasting of a terminal rate was done,” said Marinus.
The governor reiterated that the primary goal of the MPC was to achieve price stability in the country, with interest rates being the best tool, said Marinus.
As a result, it is expected that the MPC will not shy away from further interest rate hikes should inflation not moderate as anticipated.
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