Rising interest rates and weak economic growth in South Africa will stifle property demand and vehicle sales in 2016, squeezing out first-time buyers during an election year.
South Africa's Reserve Bank (SARB) raised its benchmark repo rate by half a percentage point last Thursday, saying inflation was worsening even as economic growth slowed.
First National Bank's (FNB) Property Barometer predicts the prime rate will peak at 11.25 percent by the first half of 2017, up from 10.25 percent now, said John Loos, household and property sector strategist at FNB.
"Given that the economy is weak and consumer confidence extremely low, the further interest rate hikes should slow consumer spending growth and keep the more credit-driven durable goods consumption category firmly in negative growth territory," said Loos, referring to houses.
Africa's most industrialised economy is in the grip of a worsening growth outlook. The rand currency weakened by 40 percent to the dollar last year to record lows but has recovered slightly while unemployment stands at 25 percent.
The central bank last week cut its growth forecast for 2016 further, to 0.9 percent from 1.5 percent.
Ratings agencies have warned of downgrades owing to the weak economy and policy flip-flops such as when President Jacob Zuma fired the finance minister in December.
"Affordability is going to be the key theme for the property market this year," said Seeff Properties Chairman Samuel Seeff.
"For a good property market, you need a good economy. Both are heavily sentiment- and confidence-driven. The economic decline and deteriorating confidence is a serious concern."
Home price growth is forecast to average around 5 percent this year, or lower, according to house price indices by Absa the top mortgage lender, compared with 6 percent last year, 9.3 percent in 2014 and 10 percent in 2013.
Worsening inflation, South Africa's worst drought in more than a century and rising rates have also raised the prospects of a bruising contest for the ruling African National Congress party at municipal polls expected after May this year.
New vehicle sales fell by 6.9 percent year-on-year in January, data showed on Monday, reflecting lacklustre demand that is expected to persist in a weak economy.
Nico Vermeulen, director of the National Association of Automobile Manufacturers of South Africa (NAAMSA), said 2016 would be a lean year for the automotive industry as rates rise.
"High interest rates increase debt servicing costs and normally put pressure on the financial position of consumers. These factors combine to then depress new car sales," he said, predicting a 7.5 percent decline in new vehicle sales this year.