PROPERTY NEWS - Few property experts were surprised by the announcement that interest rates will be increasing for the second time in a row. With prime hitting 7,5%, however, some are raising concerns about the wisdom of any further increases this year.

"Our economy is already under severe pressure," says Tony Clarke, MD of the Rawson Property Group. "We've only just been upgraded from junk status by certain rating agencies, and we have a long way still to go in terms of recovery."

According to Clarke, the extended period of record-breaking interest rate lows has been pivotal in helping the country ride out the pandemic so far - largely because of its impact on property.

"The property sector is an important - and significant - contributor to the GDP," he says. "The buoyancy it experienced as a direct result of the low interest rates has played a critical role in keeping our economy afloat over the last two years. Any impact on that buoyancy will also impact our economic recovery. 

That's not something we want to play games with in our present situation."

Interest rate increases have a very real impact on the daily lives of South Africans.

Clarke says low interest rates enabled many first-time homebuyers who were previously financially excluded from property ownership to get a foot in the market. "Being able to own property gives people a sense of place, a sense of pride, and the ability to start building generational wealth."

While the latest interest rate increases have been mild, Clarke says they can still have an extraordinary impact over the lifetime of a bond and make a real difference to buyer affordability.

For example, someone buying a R1-million property at 7% (prime three months ago) would have paid R7 750 per month and a total of just over R1 860 000 over the lifetime of their 20-year bond should the rate have remained the same. 

With an interest rate of 7,5% (prime today), those monthly repayments increase to R8 060 and the total repayment to just over R1 934 400.

"I do think this latest increase was premature," says Clarke, "but South Africans and their property market are both extraordinarily resilient. As long as future interest rate increases are kept low. We're expecting to see at least five different rate hikes for this year and we expect this to be done responsibly and slowly, with small increases of 25 basis points each time, so that it would not put any additional stress on the economy - and the property market should be able to absorb the hit and continue on a positive trajectory."

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