Tough times hit property market

251013 Seeff propperty for sale in Johannesburg South.photo by Simphiwe Mbokazi 453

251013 Seeff propperty for sale in Johannesburg South.photo by Simphiwe Mbokazi 453

Published Jan 21, 2016

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Cape Town - First-time buyers will have a tough time purchasing property as looming interest rate hikes and food price increases are predicted for 2016.

FNB property sector strategist John Loos said the current drought and the rand’s decline was likely to cause a spike in the current interest rate. “This could increase the mortgage lending rate and fewer people would be able to afford to buy houses,” said Loos.

The effect of the drought will be especially hard for communities who depend on agriculture for their income.

“We could see a drop in residential property purchases in these areas. Increases in municipal tariffs and double digit increases by Eskom will make things even harder.”

Seeff Properties chairperson Samuel Seeff said the economy and property market were certainly in for a bumpy ride.

“Affordability would certainly be an issue for the market this year. It is almost certain that an interest rate hike is coming next week, potentially a half percent, but it could even be as much as one full percentage hike on the repo rate,” said Seeff.

This will affect consumers as the knock-on effect will trickle down to the property market. Housing bonds will be more expensive and, faced with rising costs, fewer people will be able to buy houses, especially first-time buyers.

“Existing home owners will also feel the pinch as utilities such as electricity will increase significantly this year.

“This is likely to drive more home owners into financial distress and, in turn, more people will be driven to the rental market,” said Seeff.

He said sellers would also be affected and may need to lower their expectations.

Rawson Property Group managing director Tony Clarke said, with the repo rate climbing 50 basis points in the last half of 2015, the latest Absa Housing Review predicts mortgage interest rates to hit 10.25 percent by the end of 2016.

“With consumer price inflation forecasted to increase from 4.6 percent to 5.7 percent in 2016 and low economic growth it looks set to be a pretty tough year for property owners and buyers alike,” Clarke said.

Affordability is definitely being affected by the economy, and it’s going to be a difficult year for a lot of property owners faced with increasing mortgage repayments.

New buyers are also going to be thinking twice before committing to purchases,” said Clarke.

Clarke said existing home owners should focus on reducing unnecessary spending and make bond repayments their priority.

Bond requirements will likely be more stringent as banks need to ensure new mortgage holders will be able to service their debt in spite of increasing costs.

“Home buyers need to make sure they have an excellent credit record, and should be conservative when applying for a new bond, not only to increase their likelihood of success, but also to reduce future financial strain,” said Clarke.

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