Property Brief - August 2023

In this edition of Property Brief, after the decline of Q2 2020, induced by the Covid-19 pandemic, property market activity rebounded healthily, buoyed by a strong dose of pent-up demand. The number of BetterBond home loan applications then remained well above the levels of pre-pandemic Q1 2020, largely due to the lowering of interest rates by the Reserve Bank. In only seven months (Dec 2019 – June 2020), the prime interest rate dropped from 10% to 7%, stimulating tremendous homebuying activity. Interest rates then started rising in late-2021. Prime has gone from 7% in Nov 2021 to 11.75% in May 2023, not conducive to residential homebuying.

Average home prices have increased, despite higher interest rates (especially during 2023). For BetterBond home loans, the nominal year-on-year increase for the 12 months ending July 2023, amounted to 3.6%. When adjusted for inflation, this number becomes marginally negative. Three BetterBond regions – Western Cape, Eastern Cape, North West – recorded positive year-on-year growth in average home prices for the 12 months ending July 2023. Now that inflation is on a downward path (having peaked in July 2022), the chances of interest rates coming down, are improving.

Homebuying activity in the price brackets below R1 million has been impacted by rising interest rates. There has been a decline in formal home loans granted below R500 000, as well as between R500 000 and R1 million for the 12 months ending July 2023. A marginal decline has occurred between R1 million and R1.5 million, and comparatively more formal grants have been approved for homes priced above R2 million. Higher income earners enjoy the benefit of alternate income sources – investments, rental income and more – which insulate them, to some extent, from the negative effects of higher interest rates. Lower income earners are more dependent upon home loan finance.

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