‘Buy low, sell high’ is the strategy that many intrepid investors adopt when buying stocks or securities.
This investment strategy may very well work for stock traders and brokers, but can the same wisdom apply to buying property?
- INTEREST RATES
While many realtors will encourage you buy low and sell high, financial planners will often urge you to follow the South African Reserve Bank (SARB) Monetary Policy Committee’s rates decision.
“The ‘repo’ rate is determined by the SARB’s MPC at its bi-monthly meetings,” SA Home Loans CEO Rob Kelso tells Drum. “The ‘prime rate’ is the base rate used by many banks to set their lending rate to clients, and in practice adjusts when repo rate changes – which means up to six adjustments to the base rate in a year if the MPC adjusts repo at each meeting.”
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Following the home buying craze of 2020, when almost the entire world was under lockdown and WFH became the “new norm”, we saw the MPC making significant, successive repo rate increases. “In 2023, we saw a sharp fall in property and mortgage transactions, which were down in the region of 25% year on year, with the most strain evident in the heart of the market – those segments under R3 million. This is despite an environment where the credit supply side or bank appetite remained robust,” says Rob.
As the cost of servicing debt steadily soared, consumers began to panic. But the sharp fall in property and mortgage transactions last year should not make consumers panic, Rob says, “as this is a normal cyclical slowdown tied to interest rates, which will turn when interest rates stabilise and come down again”.
South Africa's inflation target range is 3-6%.
- 2024 OUTLOOK
SA Home Loans predicts “a year of a slow recovery for the property market in 2024, rather than a bounce back, with a cautious return of consumer confidence”, says Rob Kelso.
“The interest rate cycle has been the dominant factor with the most significant cumulative tightening cycle in more than a decade and the most rapid rise in interest rates in more than two decades.
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“This has resulted in strained affordability for new buyers and strained affordability for existing borrowers, with rising arrears on credit portfolios across the industry.”
However, the economic signals for 2024 and 2025 are increasingly positive. “Notably, the consumer price index (CPI) has moderated, and interest rates have likely peaked, and the consensus is for a round of steady, moderate rate cuts from mid-year,” Rob says.
“This will provide relief for consumers, with improved affordability and increasing confidence to access credit.”
