Simon Bray talks about how the interest rate spikes affect the property market and what this means for 2016.
Reporter: We're still easing into 2016, but it is evident that the economy is not looking too good in South Africa, and with the interest rate spiking, we ask the question: How does this impact the property market? There is a lot of negativity over the past few months with regards to our economy, with regards to the rand falling to all-time lows. How does this affect where we stand right now, the rand’s traumatic fall against the dollar. What does it mean for the property market?
Simon Bray: The property market is one of the biggest sectors of the economy. So it's really stimulated by the growth of the economy or the contraction. And a lot of the economists are preaching a bit of doom and gloom, they're talking about the economy really struggling to grow. You see some stronger economies particularly in the States, in Europe, doing really well, and South Africa is not doing very well. As you said, the rand has taken a real beating over the last little while and that has an impact on property but most notably it has an impact on affordability for various people in the market. You and I will have less money in our pocket, prices of food, prices of luxury items - they get more and more expensive. And so that makes it difficult for us to be able to afford the basics like the roof over our head.
It all seems really bleak. But is there an upside to the whole property market situation?
There are plenty of silver linings. And property is a great business from that respect because it's either a buyer’s market or a seller's market. I think we've had quite a robust market over the last year and a half, two years, sellers have seen their prices slowly going up, slowly strengthening and it's been more and more difficult to find something in the market as a buyer. This year, I think it's going to be an exciting year for buyers. So those buyers that have built a little nest-egg, they've got a deposit together, they've got good income, they're going to find nice deals in the market. There are going to be nice opportunities for them to buy. So there's always a silver lining on that side. And of course, the lower our rand goes, the more foreign buyers are interested in our country. South African property is still a great investment, we've got some of the most beautiful places to live anywhere in the world, and the price for those homes relative to homes overseas is just getting better and better. An example would be a single-bedroom flat in Knightsbridge in London is equivalent cost of a R20 million home here in Bishop's Court. You're getting beautiful, lovely gardens, beautiful home and a state type living. Unfortunately there's no great news for the South African buyers in that, but if you're trading property and you've got a couple of investments, you could look at the foreign market as an opportunity to sell.
Now we've already had one interest rate hike. Do you think there'll be any more? And what will the effect of those hikes be?
Well, the interest rate, what does it mean to an ordinary person? Everyone talks it up in the media. Everyone's like, "Oh, the interest rates going up," but what it basically means is your cost of credit, your ability to get a home loan just gets that much more expensive. The banks charge you more for the same credit, and so that's a little difficult. It means your affordability changes, the homes that you can afford to buy, perhaps your budget and your idea of what it is that you want to purchase needs to come in line. But the interest rate is scheduled to go up slowly during the year. I think it caught a lot of people off guard that it went up as quickly as it did in January, but hopefully we don't see it rise too quickly.
In a very tough market, which areas do you think are going to hold up best?
That's the exciting thing about a tough economic environment, there are going to be pockets of the market that do really well. So, property search and finding the right property becomes really, really important. It's not like the whole market is going to do well. So, websites like ours are a great place to go and find the right deals. You want to look for those ends of the market that are very popular. You want to look particularly sectional title developments. So flats, apartments, complexes, and those areas that are close to CBDs. So Sandton in Gauteng, if you're looking in the Western Cape - City Bowl is still a really great option and Umhlanga is a booming area in KZN. So you want to look for those high density city areas.
