South Africa’s prime lending rate is currently at 7%, the lowest it has been in five decades. As the Monetary Council of the South African Reserve Bank (SARB) is set to meet at the end of March, a unanimous vote by 25 economists on Finder’s repo rate forecast report thinks the bank will continue to hold the rate.
Just over a quarter of the panel expects the rate to increase this year and 46% of panellists don’t expect high volume of mortgage approvals to continue in 2021. Their analysis also forecasts that residential property prices will increase slightly by an average of 2.2% over the next 6 months.
'Goldilocks of monetary policy'
Nedbank chief economist Nicola Weimar thinks the Bank has achieved the goldilocks of monetary policy and it’s now a matter of waiting for previously set policies to take effect.
“Hiking now would not make sense since inflation is well contained & the economy is still operating well below potential. Cutting would also not be wise as the SARB has already done enough, the actual rate is below the neutral rate.
“So Monetary Policy is stimulatory enough. It is now just a case of waiting for the policy to impact on the economy – become a stimulus rather than a cushion against tough times.”
'Declining corporate income tax pressure'
While the majority of panellists (88%) think the Bank will and should hold the rate, a small minority (12%) think the Bank should actually cut the rate.
IQBusiness chief economist Sifiso Skenjana thinks the Bank should cut the interest rate by 25 basis points.
Acknowledgement of Debt
Along with their co-ownership agreement, owners must also sign an Acknowledgement of Debt for their share of the mortgage bond in favour of the other owner: In this way each owner has recourse against the other should the bank recover one owner’s mortgage bond non-payments from the other owner.
Co-owners who acquired a mortgage bond to purchase a property together are equally responsible for the repayment of such mortgage bond to the bank. The bank holds the co-owners jointly and severally liable to repay the loan. This means the bank can recover the full amount from either of the co-owners, regardless of the split in ownership.
So if one of the co-owners stops contributing to the monthly mortgage bond repayment, the bank has the right to collect the outstanding amount from the other owner in full.
Where family members share a rental property, the same conditions exist. Tenants will be ‘severally and jointly liable’ in terms of the lease. What this means in simple terms is that each tenant is 100% liable for the full rental, not only their share.
“While we are reporting a better than expected revenue shortfall, the contribution was largely on the back of a mining earnings growth and not a stabilising economic growth context. The declining corporate income tax base is a clear sign of the economic pressure points and relief through an interest rate decrease is needed at this point in time,” he said.
Could 2022 be the year of rate hikes?
However a rate increase might not be too far off, with 28% expecting to see a rate hike this year and over half (56%) say the rate will increase next year.
Stellenbosch University chief operating officer Stan du Plessis says South Africa could depart from the low repo rate regime as soon as the tail end of 2021.
“I expect the economy to recover sufficiently by the second half of the year to require an exit from the abnormally low repo rate level. The expected rise in long term bond yields will add to the pressure on the short term of the curve,” he said.
A small minority of panellists (16%), including the Department of Economics and Finance, University of the Free State senior researcher Dr Johan Coetzee, don’t expect the rate to increase until at least 2023.
“The SARB has to ensure that it continues to support the poor economic environment facing South Africa. Lower interest rates will be part of the macroeconomic policy mix for a time yet,” he said.
High volume of mortgage approvals could be coming to an end
trend of a high volume of mortgage approvals we saw in 2020 will likely come to an end this year, according to just under half the panel (46%).
Absa Group senior economist Peter Worthington says the volume we saw last year can be attributed to a stock adjustment. “The problem is that incomes are not there to keep this going on a long term basis,” he added.
STANLIB economist Ndivhuho Netshitenzhe agrees volumes will peter out.
“[It’s] most likely that people were taking full advantage of the historic low-interest rates and this trend should start to reverse as interest rates are likely to have bottomed out,” she said.
However over a third of the panel (36%) say we’ll continue to see a high volume of mortgage approvals and 18% say they’re not sure.
Property prices to increase only slightly over next 6 months
Property prices in South Africa’s 10 biggest cities are set to increase by an average of 2.2% over the next 6 months, according to 14 of the panellists who provided property forecasts.
Several economists noted the current low-interest rate regime will prop up the market.
Professor at the University of Johannesburg Ilse Botha, who gave property forecasts ranging from 2-3% across all cities, noted that historically low-interest rates mean owning property is more affordable than renting.
However, head of operational risk global at Fitch Solutions Chiedza Madzima says that while the low-interest rate environment will support the sector, prices will remain subdued when accounting for inflation.
'Cape Town is expected to see the greatest property price increase'
“… in real terms, housing prices will remain subdued when accounting for inflation. Larger cities/areas will see higher demand compared to smaller/high density areas. In lower-income brackets, the recovery will be slower,” she said.
UNISA economics lecturer Mzwanele Ntshwanti says any increases will be marginal due to the ongoing economic consequences of COVID-19.
“The market is generally struggling due to covid-19 and loss of income for many people. Inequality is showing itself greatly as well in this industry since high earners are the winners and low earners are the losers. Thus, increases will be marginal.”
On average Cape Town is expected to see the greatest property price increase (4.5%), followed by Johannesburg, (3.07%) and Durban (2.79%). Meanwhile, cities like East London (0.64%) and Port Elizabeth (0.93%) are expected to increase only marginally by less than 1 percent.