All is not doom and gloom despite the South African Reserve Bank’s decision today to implement yet another interest rate hike by 0,5% says Tyson Properties CEO, Nick Pearson.
Ask if he expects a panic sell off of homes, a surge in bank reclamations and auction boards popping up on suburban pavements, and you’ll get a resounding no. People still have some room to make adjustments and banks have been consistent in their willingness to assist customers to ride out economic storms over the past couple of years. This is not likely to change, in his opinion.
Good could come out of interest rate hike
Although he is sensitive to the fact that consumers – and, in his case, potential home buyers – are under immense pressure with household disposable income seeming to shrink almost monthly, he remains optimistic that a lot of good could come out of this latest adjustment.
Describing the local property market as one that’s been at an impasse for some time with buyers pricing their properties at between 10 and 20% above the amounts that most sellers are prepared to pay and properties remaining on the market for longer than they should, Pearson says this latest interest rate hike could be the reality check that South Africa’s residential property market needs.
“Closing the gap between buyers and sellers could even inspire more transactions further down the line. It always does. The market may dip for a month or two but, as more and more people are prepared to sell their houses at more realistic prices, the market will become active again,” he says.
Pearson points out that there are always buyers in the market and that the present market favours them. “Buyers are effectively getting a 10% discount on an investment. There are a lot of people who make a lot of money in tough markets because they can find those once-in-a-lifetime opportunities. Good businesspeople will still be buying,” he says.
He adds that buyers, too, may benefit from that all-important reality check and revise their expectations downwards based on affordability. “It is often hard for the next generation of home buyers, who should be entering the market right now, to find houses at the right price. Things always seem to be just out of reach. This might be the opportunity for them to find a home at a better price and to enter the market. So, a drop in house prices might not be the worst thing in the world for the South African economy in general.”
Two property markets in South Africa
He also believes that South Africa can be roughly divided into two distinctive property markets that will react completely differently to the latest interest rate hike. Firstly, there’s Cape Town where the buoyant market will be less sensitive to repayment rates as pent-up demand from the many buyers relocating from other provinces coupled with ongoing international investment from Europe and the United Kingdom, keeps prices strong. Many of these investors are cash buyers.
Then there’s the rest of the country.
Pearson believes that the KwaZulu-Natal market, which offers both the best value and the best lifestyle, will be the most resilient and bounce back from what will be viewed as a temporary setback.
In Johannesburg, where the market has been suppressed for some time with too many properties on the market, this could be the long-awaited tipping point that pushes prices downward and re-ignites activity.
Overall, Pearson urges South Africans to view the latest rates hike in the context of the widespread global economic downturn which is seeing interest rates moving upwards in both developed and developing economies. For the most part, this hasn’t put a lid on buying.
“We can’t deny that the world is going through a tough time. There’s a war going on in the Ukraine, like American politics, South African politics is challenging. There are problems wherever you look. Where there’s poor leadership, people struggle,” he suggests.
But, as has been proven in the past, economics and related market trends are cyclical and there is always a recovery. He remains confident that, as South Africa works out its energy woes and the hugely under-valued rand strengthens once more, there will be a lot of gains.
“It’s certainly a hugely speculative market. I look at the market right now as a good time to be buying property, to be buying and growing businesses. It is exciting,” he concludes.