Interest rates shake up Cape Town property market overnight
With the South African Reserve Bank raising the repo rate from 4.75% to 5.5% in July, property owners and purchasers alike are wondering what impact these will have on Cape Town property market.
When interest rates decreased dramatically to historical lows in 2020, rental prices dropped sharply below 30% in some areas as the market saw a large number of tenants take advantage of the low borrowing costs. Fast forward to today and interest rates have almost doubled which is a significant factor in an inflationary environment.
While the prime interest rate at the current 9.0% is still well under the historical average of 12.03%, the high cost of living means that property owners holding substantial mortgages with a high-loan-to-value ratio are starting to feel the pinch, particularly those who purchased in Cape Town over the past two years. Judging from the sharp declines in major stock-market indices around the world, purchasers buying into most asset classes didn't anticipate such an aggressive response from reserve banks.
As a result of the considerable shifts in both interest rates and inflation, demand for rentals in Cape Town has shot up in all price categories given that it's become increasingly difficult to attain loans due to the general constrained affordability within the marketplace.
As we draw closer to the "spring property selling season", the team of analysts at Quay 1 believes that there is a high probability that the market could experience an increase in pressured sales putting downward pressure on prices, particularly in the R3,500,000 and under price range.
Other factors that the team will be paying careful attention to over the next few months to ensure that we continue to navigate success for our clients in all market conditions will be the consumer price index, semigration trends and interest rates. These factors will play a crucial role in determining the key target markets our strategic marketing team will need to be tapping into in order to ensure that we continue to maximise our sellers' return on investment.
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