The governor of the South African Reserve Bank, Lesetja Kganyago, has been steadfast in that the interest rate will not be cut until the inflation rate drops. While many analysts and property market stakeholders predicted that we could expect the first decrease in the first half of this year, it now seems that we may not see one at all in 2024!
However, if you really spend time researching the current property market, you'll realise that a shift is on the horizon, although it may be a bit of a slow burn. At some point though, the market is going to morph from its current buyer's to a seller's market, which is what an interest rate cut will inspire, and when it does, residential property values will increase. At the same time, homes will likely sell quicker than the current average of 12-14 weeks.
Personal decision
The decision to buy or wait for the interest rate to come down is a personal decision, and while it might seem to be more advantageous to wait from an affordability perspective, it may not necessarily be the right decision. Consider these benefits, that is if you can afford a property when the interest rate is high:
Advantages of buying now
- You will realise a lower home loan repayment when the interest rate comes down.
- If you maintain your current home loan repayment after an interest rate cut, you’ll be paying off your home faster.
- Competition to buy a particular property will be less than in a seller’s market.
- The price of a property will likely increase when the interest rate decreases.
- You may be able to negotiate on the price, especially if you have been prequalified for a specific home loan amount.
Disadvantages of waiting
- There will be more buyers in the market which creates more competition for homes.
- Prices will rise.
- You may lose out on acquiring a property you really love.
- Negotiations are tougher.
- No guarantees that the interest will decrease within a specific time frame, enough to impact on the category of homes that you can afford to buy.
Agency heads and practitioners react
Samuel Seeff, chairman of the Seeff Property Group says that currently, “buyers are looking for a level of negotiability from sellers. The seller may prefer to wait since a rate cut could result in more buyers and potentially higher prices. However, the seller would then also have to pay a higher price, while there is no guarantee that his property will achieve a higher price if only sold then. Considering the time value of money, then it might therefore make sense to sell now despite the higher interest rate.”
Michelle Cohen, Principal Property Practitioner of Leapfrog
Johannesburg North East, concurs adding that the main reason to
purchase prior to a downward trajectory of interest rates, is price. “Buying a property in this market means that you are negotiating with a 'real seller’, that being a person who wants to sell now and is
going to be realistic in terms of the price that they will accept for their property.”Cohen also points out that buyers and sellers are in the same segment of the property cycle, so in another sense decisions are relative to timing. “In the same way that a buyer realises benefits of buying currently or at a later date, the seller will also realise the same benefits.”
Paul Stevens, CEO of Just Property is in agreement. He adds that “economic factors can change suddenly so before a seller who requires a quick sale, makes any decision, they have to assess their personal financial situation and risk tolerance. There is a case to be made that where there is a stock shortage, reduced competition can work to a seller’s advantage.
“Buyers who are ready to act ahead of the interest rate cut can secure affordability and, potentially, benefit from capital appreciation as the market responds to a rate change.”
Cohen says there has never been a more important time to strategise your residential property sale or purchase than right now, which resonates with Seeff and Stevens, who along with Cohen highlight the importance of working with a credible sales agent.
