Bad news for South African homeowners in 2024

The current state of South Africa’s property market means selling a home has become increasingly difficult and can take up to three months or even more as high interest rates weigh on the sector.

According to the Seeff Property Group, South Africa’s property sector is currently in a buyer’s market. This means there are more houses for sale than interested buyers.

This scenario gives buyers the upper hand when negotiating a house purchase.

“While properties can sell within a day to a week in a seller’s market, it takes up to three months and sometimes more in a buyer’s market, as we are currently seeing in many areas,” the property group said.

South Africa’s property market has been under severe pressure in recent years, as the Covid-19 crisis dampened demand and, more recently, high interest rates have discouraged South Africans from buying property.

On 30 May, the South African Reserve Bank (SARB) announced its decision to keep interest rates at 8.25% for the sixth meeting in a row. This means the country’s interest rates have stagnated for over a year.

Head of Product at FNB Home and Structured Lending Angela Glover explained how high interest rates affect homeowners.

“Most home loans in South Africa are on variable rates, as this is the standard option that is preferred by home buyers,” she said. 

A variable rate is linked to a base rate, usually the prime lending rate, which has stood at 11.75% since May 2023. 

As a home buyer, you will be offered an interest rate of either prime plus or prime minus, depending on your credit score. For example, if your bank-approved interest rate is prime plus 0.2%, you will be paying 11.95% interest per annum on your bond repayment.

After every MPC meeting, the latest interest rate decision is announced to the public. This is when we all hear if rates remain the same, increase, or decrease. 

Lenders are obliged to follow suit after this rate announcement has been made. Therefore, if the repo rate goes up or down, banks will increase or decrease their lending and cash investment interest rates by the same increment. 

“If you have a variable interest rate, your rate will also go up or down in accordance with the MPC announcement, and your interest charges will accrue at the new rate, pro rata, from the date of the change,” she explained.

Glover gave an example of what that change might look like for a R1 million home loan paid off over 20 years.

An interest rate of 11.75% requires a repayment of R10,837. If the interest rate drops by 50 basis points to 11.25%, your required repayment is R10,492. 

A fixed rate is not linked to prime but rather allows you to lock in a certain interest rate for a fixed period, up to 5 years. The rate that you can lock in is dependent on South Africa’s rate cycle and the outlook of various macroeconomy experts on future expectations.

She said the benefit of a fixed rate is that you know exactly what your required instalment will be over the period of the fix, which can give a lot of comfort if you are unsure of where South Africa’s repo and prime lending rate ceiling will be in the next months or years. 

However, the disadvantage is that if you have a fixed rate and variable rates drop below your fixed rate, you are stuck at that rate until your fix expires.

“Understanding your personalised credit interest rate is a vital step in managing your monthly expenses and cash flow,” she said. 

“Your interest rate has a real impact on your monthly repayment, as well as the total cost of credit over the life of the loan.” 

“If your interest rate is fluctuating dramatically from month to month based on complicated behavioural rules and conditions, your repayment becomes unpredictable, making it difficult to manage your budget and control your expenses.”

Selling in a buyer’s market

Seeff Property Group said selling in a buyer’s market is challenging, especially when you need to sell your property as quickly as possible. However, there are some steps sellers can follow to make their property more attractive to buyers:

• It cannot be overstated that the asking price must be attractive enough to immediately attract buyers. There is no time to waste on testing the market.
• Get the property into an immediately sellable condition. It must be clean and well-maintained. If areas are unfinished or broken, for example, it will likely diminish the chances of a quick sale.
• Even at a lower price, many buyers are simply not interested in home repairs or renovations, and they would rather pay a little more for a home that needs no work.
• Make sure you choose a top agent in your area. Area specialists usually have good insight into the types of buyers attracted to the area.
• In some cases, you can sweeten the deal by leaving certain items behind. For example, window coverings might be one area, especially if they are customised or in neutral colours.
• Ensure that your house plans and all documentation needed for the sale and transfer are in order and ready to go as soon as an offer is accepted.
• Ensure all utilities and other costs, as well as your taxes, are up to date, as these could cause delays in the property’s transfer. 
• Be flexible with viewings so that any potential buyer can be easily accommodated with a viewing before their attention is distracted to another property.
• Be open to all reasonable offers. Cash is always king, even if the offer is lower than another offer that comes with suspensive conditions.

“The challenge arises when you need to sell your property as quickly as possible. While this might be difficult, it can be done,” the property group said.