'Twin terrors' faced by residential property market

The devastating drought and depreciating rand are twin terrors for the residential property market, especially for homes in lower income communities, according to David de Waal, CEO of Steeple Estate Agents.

This is because lower-priced homes tend to be financed with debt to a greater extent than higher-priced properties. Higher interest rates could, therefore, have a greater impact on the lower-priced segment.

"The drought will cause food prices to surge, especially since replacement imported products will have to be paid for with our weak currency," he said on Friday.

He explained that higher food prices will mean lower disposable incomes for buyers, reducing the probability of obtaining bond finance from banks.


"Higher prices will also push up inflation which, together with the woes of the currency, may very likely lead to an increase in interest rates in SA - further reducing the likelihood of people qualifying for bonds and putting additional financial pressure on existing homeowners," he said.

In the short term he expects the property market in smaller farming towns to be affected first, because these towns rely heavily on agricultural production to drive their economies.

"We have already seen that the poor economy and loss of confidence in the country's leadership have resulted in buyers becoming far more wary about committing to buy a property, and this trend is likely to continue," said De Waal.