Tough year for homeowners and Community Scheme Managers, but still showing signs of positivity

Property remains a barometer for the economy and when house prices and interest rates are under pressure, the market will feel it. According to WatchProp, 2023 is expected to still add to the challenges homeowners face, especially after the January 2023 interest hike of 25 basis points, but the property market is still offering opportunities and affordability for buyers, sellers and tenants.

WatchProp managing director, Craig Coetzee says the interest rate hiking cycle is now reaching a precarious point. The Reserve Bank Repo rate now stands 7,25%, despite predictions that it would rise to 7,5%. This puts the bank lending rate at 10,75% and potentially marks the end of the low interest rate period since the beginning of the pandemic and an end to a favourable lending climate for potential homeowners, which for now is still good.

Homeowners will feel the pain as long as the economy remains stagnant and this may spill over to challenges for community scheme managers to collect levies. Many homeowners will find there will be a lot of month left after salary date placing added pressure on their budgets on top of feeling the weight of the energy crisis.

While there has been positive news for property in the budget speech, homeowners will remain stressed about the interest rate hike cycle we are in. However, some economists predict the rate to reduce towards the end of the year. Good news, too, for homeowners from the budget speech is the tax rebate on the installation of solar panels to reduce the demand on the electricity supply grid.

Further positive news also comes from the dip in CPI inflation in January, which may ease the pressure on interest rate hikes.

For solar installations, trustees could inform homeowners that the rebate is valid for 1 year only, and they can contact WatchProp to co-ordinate installations to ensure consistency of product supply to avoid different substructures on roofs of community scheme homes.

Coetzee says that with lower than expected growth forecasts, the country is facing economic challenges for the longer term. With interest rate hikes still on the table while the energy crisis will remain with us for some years still, economic pressures for businesses and households will remain.

House inflation will, too, remain under pressure as interest rates remain an upward trajectory. This will lead to increased demand in the rental market and could reach levels last seen pre-pandemic. With this comes the risk to landlords of high interests rates causing cash flow constraints for tenants. Trustees will do well to manage expectations and keep a focus on keeping residents up to date with their levies.

Coetzee says that for now, rental barometers indicate that the rise in tenants defaulting on rentals is limited. Landlords are seeing some growth adding to the positive sentiment in this market. Further interest rate hikes will be detrimental to market sentiment and it would be prudent for the Reserve Bank to consider this at the next Monetary Policy Meeting.

For more information on the rental market, contact WatchProp.