High Interest Rates and Negative Sales Impact on Buyers and Sellers

As South Africa continues to grapple with high interest rates, the dream of homeownership is slipping further out of reach for many potential buyers. This economic shift is creating significant challenges for those looking to purchase property, making it crucial for all stakeholders in the real estate market to understand and adapt to the evolving landscape.

Richard Gray, CEO of Harcourts South Africa, highlights the pressing nature of the situation: "The rise in interest rates is a double-edged sword. While it's a necessary step to curb inflation, it simultaneously makes home loans more expensive, reducing the affordability for many prospective home buyers."

In recent months, the South African Reserve Bank has implemented several rate hikes in response to global and domestic economic pressures. These adjustments, although aimed at stabilising the economy, have a direct and often immediate impact on the real estate market.

"With each increase, or maintenance of current rates, the cost of borrowing rises," Gray explains. "For example, a 1% increase in the interest rate can significantly raise monthly bond repayments, putting additional strain on household budgets. This can discourage potential buyers from entering the market and push current homeowners into financial distress."

A recent report by Lightstone revealed that while sales in execution (sales resulting from financial distress) had declined compared to the peak of the global economic crisis, negative sales (where houses are sold for less than their purchase price) were on the rise.

"When looking at SIEs (sales in execution), negative sales and negative value growth sales in tandem, we see a likely more realistic view of true distress as properties which were bought 10 years ago were unlikely to sell at more than the purchase price, therefore failing to realise the anticipated growth in value," the company's report said. 

Turning to first-time buyers, who often rely on favourable lending conditions to step onto the property ladder, the affordability issue is particularly acute. 

"First-time buyers are the most vulnerable in this scenario," Gray notes. "They typically have smaller deposits and are more sensitive to changes in interest rates. The current environment can delay their ability to purchase a home, prolonging the period they need to save and possibly pricing them out of the market entirely."

Despite the challenges, Gray believes there are steps that can be taken to mitigate the impact of rising interest rates. 

"Education is key. Potential buyers should be informed about their financial options and the importance of securing fixed interest rates where possible. Additionally, exploring different loan products and seeking professional advice can help navigate this complex environment."

Harcourts South Africa remains committed to supporting home buyers through these uncertain times. "Our mission is to help people achieve their property goals, even in challenging economic conditions," Gray asserts. "By providing expert guidance and innovative solutions, we aim to make homeownership a reality for as many South Africans as possible."

The current economic landscape underscores the need for adaptability and resilience. As the market adjusts to high interest rates, both buyers and sellers must be prepared to navigate new realities. "It's a time for strategic thinking and careful planning," Gray advises. "The dream of owning a home is still attainable, but it requires a proactive approach and a willingness to explore all available options."