As real estate emerges from Lockdown under Level 3 and the support structures of real estate transactions head back into operation, we also enter the best buyers’ market in my over 35 years in the industry, he says.
The latest rate cut has taken the total decline in the interest rate to an unprecedented 2.75%, taking the repo rate down to 3.75%, below 4% for the first time since introduced in 1998 as the Reserve Bank’s main policy instrument. The prime interest rate (and mortgage lending rate) now stands at 7.25% for the first time since 1966.
These rate cuts have created an unprecedented opportunity for buyers to take advantage of what is now a near five-decade low reducing borrowing costs and improving affordability, says Seeff.
Besides the considerable saving on monthly mortgage payments, affordability has increased drastically. If you had purchased a R1 million property at 10%, i.e. before the rate cuts, your gross monthly income requirement was at around R33 000 per month. It has now reduced by over R5 000, a significant benefit for buyers to take advantage of the interest savings and transfer duty exemption.
While it is difficult to predict how the market may play out in the coming months, Seeff says that right now, the market is especially favourable for the low to mid-market range to R1.5 million (R3 million in some areas) where we are seeing the bulk of activity. Buyers who are financially able to buy now have more property to choose from as stock levels are higher than what they have been for some time.
In many low to mid-price areas it is almost cheaper to buy than rent now, he says. Investors can also use the low interest rate to their advantage. Sellers in the low to mid-price ranges should still be able to sell faster. Additionally, says Seeff, price growth in this sector is also likely to fare better compared to the higher price bands.
The upper price bands and super luxury sector above R8 million (R15 million in Cape Town) are, however, expected to remain muted and sellers will need to price competitively. This sector of the market, says Seeff, is a function of sentiment. Until sentiment and economic activity picks up and confidence in the future of the country and the economy improves, buyers will likely remain selective.
That said, the super luxury sector currently offers the best opportunity for bargain hunting in 35 years. The depreciation of the Rand means that high end property is now about 20% to 30% cheaper for those paying in Dollars, Pounds or Euros. Prices are already down by about 20% since 2018 and we expect a further decline of around 20% to 30%.
Seeff expects the rental market to be busier than usual with a great deal of movement. Many tenants will look to downgrade, and more people will move into the rental market until financial stability returns and the economy improves. While rental rates will come under pressure as a result of the economic decline, we do expect the market to bounce back quite quickly.