* This article first appeared in our latest Property360 digital magazine
A new wave of property buyers is likely to bolster the market this year, picking up where first-time buyers – who were encouraged by the historically low-interest rates – left off.
As these buyers will be less sensitive to interest-rate increases over the next three years, buying activity is not expected to wane. Many are repeat buyers who can afford more expensive homes.
Home buying improved significantly after the interest rate cuts, says FNB senior economist Siphamandla Mkhwanazi, with two waves of home buying flowing into the market.
The first, which was seen in the second half of 2020, was largely driven by younger buyers, most of whom were buying for the first time. More recently, though, a number of repeat buyers have been coming to the fore, buying in the upper price segments.
“So, one could argue that the interest rate-sensitive buyers – lower income, first-time buyers – have already brought forward their buying decisions, and now the market is largely driven by less interest-rate sensitive buyers.”
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These buyers have higher incomes and “superior access” to equity and savings.
However, they are still getting “decent deals in a market that has suffered from subdued demand for a long time”. Mkhwanazi adds although the cost of servicing a mortgage will probably go up this year, and have a cooling effect on demand, price growth may be slow, and this “could present buying opportunities in some segments”.
Still plenty of opportunities Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa, echoes this, saying that 2022 “should still be a good year to buy property”.
“House price appreciation has remained subdued for some time now, owing to the struggling economy and the impact of the pandemic, which means buyers stand to get more for their money by investing now.”
Property will always remain an “excellent and stable investment, outperforming many other asset classes”, adds Tony Clarke, managing director of the Rawson Property Group. And the sooner one can enter the property market, the better.
Realistically, though, buyers still need to prepare for future interest rate increases, although these are likely to start “very slowly”.
“For buyers and investors, property prices remain favourable, and while interest rates won’t rapidly increase in the near future, they’re still likely to be good for some time, meaning this is still a good time to buy.
“Consumers have proved resilient and their confidence in property as an investment remains strong. Banks are also coming to the party and offering up to 105% mortgages, likely to be available for some time to come.”
But... you need to prepare for water and electricity price increases Thanks to low-interest rates over the past 18 months, says Carl Coetzee, chief executive of BetterBond, in many cases it is cheaper now to buy a home than to rent a property of the same value.
However, owning a home incurs expenses over and above the bond repayments, such as maintenance and utility costs. “Homeowners need to budget for electricity and water tariff increases, as well as price increases in the cost of materials needed for the upkeep of their homes. The cost of living continues to rise and this needs to be factored into calculations of monthly expenses when applying for a bond.”
He emphasises that, regardless of the interest rate, affordability should be the most important consideration when owning a home – and this includes having enough in the household budget to cover monthly expenses and unforeseen costs. Mkhwanazi agrees.
“Utility costs, especially electricity, are expected to rise significantly again in 2022, possibly by an amount close to 15%. You also have water prices that have been heating up. Municipalities are financially constrained, so you may see pressure on rates and taxes as well.
“Cost of services may also rise, such as medical aid and education.” Start preparing now If possible, homeowners should pay a bit extra into their bond each month, Coetzee says, as even a small amount will make a difference in reducing interest and the overall loan repayment period.
“If you are applying for a bond this year at the current interest rate of 7.25%, consider paying what you could pay when the prime lending rate reaches 10% – possibly in the third quarter of 2024.” In this way, he says you will reduce the amount of interest on your loan and shave a few years off the loan repayment period.
“So, instead of paying R15 808 each month on a bond of R2 million, you pay R19 300. This will result in a saving of R641 803 on interest and reduce your loan repayment period from 20 years to 13.6 years.”
Expect to pay more
Currently, the repo rate, which dictates the interest rate, is 3.75%, and if one follows the Monetary Policy Committee’s forecast that we could see nominal increases in every quarter for the next three years, BetterBond’s Carl Coetzee says the rate could be:
• 4.75% at the end of this year
• 5.75% at the end of next year
• and 6.75% at the end of 2024.
“This means, at the beginning of this year, with the prime lending rate at 7.25%, the monthly repayment on a R2 million bond will be R15 808.”
The repayment on this bond amount could increase by
• R304 at the end of this month,
• R1 866 by the second quarter of next year
• and R3 492 by the third quarter of 2024.
Illustrating the rise of bond repayments on a R1.5m home loan, based on expected interest rate hikes, Siphamandla Mkhwanazi of FNB says the amount that buyers are paying now could increase by R691 by the end of this year, R1 160 by the end of next year; and R1640 by the end of 2024, if the interest rate goes up by another 50 basis points that year.