Published January 2022
South Africa's housing property market has shown remarkable resilience in the past two years; emerging stronger from the pandemic and remaining robust in the midst of civil unrest and inflationary pressures. BetterBond expects it to do the same in the face of the ongoing Russia-Ukraine conflict.
This is not to say that a protracted conflict between Russia and Ukraine won't have an impact on the housing market. High oil prices as a result of the tensions in Eastern Europe have had a knock-on effect on inflation in South Africa, leading to escalating interest rates. The South African Reserve Bank forecast nominal 25 basis-point interest rate hikes for the next three years, which increased as inflation increased.
However, the solid fundamentals already in place will buffer against these pressures. More than a year of record-low interest rates strengthened the property market so that it can withstand these geopolitical shocks.
As FNB reports, much of the current buyer activity is at the upper end of the market, where homebuyers are less sensitive to interest rate increases. So while increased interest rates may subdue market volumes, there will still be pockets of positive growth.
Rising interest rates have not dampened property prices across the board, and BetterBond reports that the average home purchase price is up 11% in the past 12 months (January data), to R1.37 million. The average purchase price was R1.2 million for the 12 months ending January 2021. Despite not being as active as in 2021, shortly after lockdown restrictions eased and interest rates hit a record low of 7%, the average purchase price for first-time homebuyers has also increased by 11% to R1.15 million. First-time homebuyers were paying on average of just over R1 million for their homes in 2021.
It is also worth remembering that property has established itself as a resilient and safe asset class, especially during turbulent times. This could lead to investors seeking to shore up their portfolios by focusing on property. The interest rates are still accommodative enough to make this a sound financial decision. Furthermore, while there's no denying that the cost of living is rising – with electricity tariff hikes and fuel price increases – rising inflation does have a related effect on the value of your home.
If interest rates are relatively low, this means that the value of your home is increasing at pace with inflation, without you having to pay that much more into your bond each month. While this is admittedly an added expense at a time when household costs are rising, there is peace of mind in knowing that property is still a good asset investment during uncertain times.
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