What Sarb’s first interest-rate hike in three years signals

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However, the first increase since May 2023 has disappointed analysts, who warn that consumers remain fragile with mounting pressure on them from rising electricity tariffs, municipal rates and water costs.

Many argue the fragile US-Iran ceasefire has failed to settle global markets, with shipping disruptions and elevated oil prices continuing to drive fuel costs higher globally.

"Locally, this is likely to translate into further petrol-price increases, adding to inflationary concerns and squeezing already constrained household budgets,” says Rhys Dyer, chief executive officer of the ooba Group.

But, despite the added pressure on already strained household budgets, the hike is modest and unlikely to derail market activity in South Africa’s resilient residential property market in the short term.

"The Sarb’s focus is not on reducing the unavoidable hikes in fuel prices but on protecting longer-term price stability," says Andrew Golding, chief executive of the Pam Golding Property group.

"By acting early, policymakers aim to prevent inflation expectations from drifting higher and to avoid the need for more aggressive action later. A firmer rand, supported by the rate hike, would also help to contain imported inflation, particularly fuel and oil costs.

"A further 25 basis point increase is currently factored into market expectations before year-end, although this remains subject to changing global economic conditions and geopolitical tensions. International developments — particularly in the Middle East and among major central banks — will be key.

"If inflationary pressures abroad begin to ease, South Africa’s domestic outlook could strengthen sooner than expected."

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Property market resilience continues

Despite expectations of additional interest-rate hikes, banks continue to support the residential property market through increasingly competitive lending conditions.

"Banks are working hard to offset deteriorating affordability by offering more zero-deposit home loans and cost-inclusive bonds. Applications for these products are steadily increasing, helping to sustain housing demand.

"The real risk would emerge only if banks start questioning the sustainability of household debt and respond by tightening credit, which typically occurs only when consumers are under considerable financial stress. Encouragingly, there is little evidence of the banks taking such action at present," says Golding.

Higher interest rates are nevertheless expected to place additional pressure on lower- and middle-income households, making affordability an increasingly important consideration for prospective buyers.

Shift to smaller

Looking forward, Golding says demand will shift toward convenience and smaller homes: "The combination of rising transport costs, congestion, and higher living expenses is expected to reinforce existing lifestyle and housing trends already visible across major metropolitan areas.

"There is growing demand for smaller, well-located properties close to workplaces, schools, retail amenities and public transport.

"This trend is particularly evident in higher-density nodes such as Claremont (Cape Town), the Cape Town CBD and Rosebank in Johannesburg, where apartment developments offering walkability and easier commuting continue to attract buyers.

"Households are becoming smaller, with more people living alone and delaying marriage or children, which continues to support demand for compact homes in convenient locations.

"Affordability pressures and traffic congestion were already driving this trend, and prolonged higher fuel costs will likely accelerate it further."

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Homebuying under pressure

Commenting on consumer affordability, Dyer shares that declining deposit amounts underscore the mounting financial pressures currently faced by South African households. “From January to April, deposits averaged 8.3% of the purchase price for first-time homebuyers and 12.4% overall – a marked improvement from year-earlier levels of 9.9% and 14.9%, respectively. Actual deposit values declined by 14.8% for first-time homebuyers and 16.8% overall.”

This comes against the backdrop of a weakening labour market, with unemployment rising to 32.7% (as per Stats SA). But despite these challenges, Dyer believes that the aspiration of homeownership remains strong among many South Africans - particularly younger homebuyers entering the market for the first time.

“One of the hardest hit by unemployment - the age 15 to 34 bracket - represents a significant portion of future first-time homebuyers. As employment prospects improve over time, many of these individuals will likely look toward homeownership, making financial-wellness education and awareness of government support initiatives such as the First Home Finance subsidy increasingly important.”

At the same time, banks are playing a more supportive role. “Financial institutions are increasingly offering more generous finance packages, including zero-deposit bonds and cost-inclusive loans above 100% (and up to 110%),” says Dyer. “Our data shows that repeat homebuyers are increasingly opting for zero-deposit loans, while first-time homebuyers are also making greater use of cost-inclusive loans.”

Looking ahead

Dyer notes that while affordability pressures are likely to intensify following the latest rate increase, property ownership continues to offer meaningful long-term value.

“Even in a constrained economy, homeownership remains one of the most effective ways for consumers to build long-term wealth and financial security. The stability in house-price growth, combined with improving access to finance, continues to generate meaningful opportunities for homebuyers.”

Looking ahead to the second half of the year, Dyer says that the Sarb will continue to closely monitor the geopolitical issues, and the ongoing impact on local inflation.

“While global uncertainty – particularly around the Middle East crisis - is likely to persist, the resilience shown by the local property market, particularly among first-time homebuyers, remains encouraging,” he concludes.