The South African Reserve Bank's MPC decided to keep the repurchase rate at its current level of 8.25% per year. The decision was unanimous.
The announcement by the MPC that the repo rate would remain unchanged at 8.25% - meaning that the prime rate holds steady at 11.75% - was disappointing for consumers with significant borrowings, including those with existing mortgages as well as first-time home buyers, says Dr. Andrew Golding, chief executive of the Pam Golding Property group.
With inflation at a four-month high, rising to 5.6% in February from 5.3% in January 2024, this is the fifth consecutive MPC meeting where the repo rate has remained stable.
Dr. Golding says: “Although the resilience of the residential property market continues to shine through despite the current weak economy and financial pressures faced by consumers, with FNB and Pam Golding Properties’ own data reflecting that buying activity has trended higher in recent months, some respite in the form of a reduction in the interest rate would have gone a long way to bolster confidence and sentiment in the market.
“According to FNB’s estate agency survey, increased housing market activity saw time on the market improve from 11 weeks and four days in Q4 2023 to 10 weeks and six days in Q1 2024, led by the Western Cape, where time on the market fell to seven weeks and one day, while Gauteng also registered an improvement.
“And despite slowing during the past year, relocation or semigration has remained elevated, rising from 11% in Q4 2023 to 13% in Q1 2024 – seen against the long-term average of 9% since the pandemic.
“With a weak economy and the uncertainty ahead of the general elections, it is currently a challenging environment for the housing market – which is awaiting interest rate relief. Nonetheless, life goes on – children need to go to school, couples marry and people accept jobs in new locations – all of which translates into property-related decisions, which include returning expats. We are also seeing renewed interest from international buyers, which incorporates those from the rest of Africa.
“Positively, market commentators are still anticipating that interest rates are likely to begin to decline later this year, providing a boost in confidence and general market sentiment. This provides comfort for those who can afford to purchase a home in the current environment, particularly as there are still value-for-money opportunities in many areas around the country. However, the market is not a one-size-fits-all situation but rather based on specific and particular supply and demand factors in almost every area and suburb across all regions. Certainly, there is a strong appetite for investment property – particularly in the Western Cape – showing a continued belief in the value of property investment.
“The recent interest rate hiking cycle – which began in November 2021 and ended in May 2023 and resulted in 475bps of rate hikes, was aimed both at normalising interest rates - which had been slashed to historic lows during the pandemic - and at containing the inflationary pressures unleashed first by the pandemic (notably supply chain disruptions) and then by assorted other factors including the war in Ukraine coupled with the disruption this caused to food and energy markets.
“While the rate hikes have been successful in bringing inflation down from post-pandemic highs, a consistent message from central bankers – including both the Fed and our own Reserve Bank – has been that there is little point in easing interest rates before inflation has been successfully contained.
“The Governor of the Reserve Bank has stated that the Bank would like to see inflation settle around the inflation target mid-point (4.5%) before the MPC starts cutting interest rates. Unfortunately, the most recent local inflation rate surprised on the upside at 5.6% in February – close to the upper inflation target limit of 6% and a four-month high. This reading reflects higher fuel prices and a steep increase in the cost of medical aid, which is surveyed twice a year. Of particular concern is that core inflation - excluding food, non-alcoholic beverages, fuel and energy prices - also rose by more than expected and increased to 5%, up from 4.5% in previous months. Core inflation is a measure of underlying inflationary pressures in the economy and is thus closely monitored by the MPC.”
Dr. Golding says: “With US interest rates remaining higher for longer, the dollar is likely to remain stronger and hence the Rand may well remain under pressure. This means the Fed’s decisions are of key interest to the local MPC, as the Rand plays a critical role in the local inflation outlook.”
Unchanged repo rate suggests greater stability
Tyson Properties CEO, Chris Tyson, has welcomed the announcement by the South African Reserve Bank’s Monetary Policy Committee to keep the repo rate steady at an unchanged 8.25%. This comes despite an increase in inflation in February to 5.6% which is close to the top of the Reserve Bank’s preferred 3-6% range.
Tyson said that the stability that was evident in the Reserve Bank’s stance ahead of the May general election was good news for the property market which was also holding steady in major centres. Like most economists around the country, Tyson remains optimistic that there could be a rate cut during the third quarter of 2024, a move that would be good news for the economy as a whole, as well as for job creation and the property market.
Meanwhile, he says the property market in Cape Town remains strong and the positivity that is evident in both KwaZulu-Natal and Gauteng is encouraging. Post the election and in the event of a much-anticipated drop in interest rates, he expects a surge in first time home purchases as well as a continued upward trend in property transactions countrywide.
Another month without any interest rate cuts
Many will undoubtedly be disappointed to hear that the MPC did not choose to cut interest rates at their latest meeting, according to regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett,.
"This announcement is disappointing. “We were expecting to see interest rates drop by at least 0.25% within the first quarter of the year. We can now only hope that it will still happen within the first half of the year. The consolation is that interest rates did not increase any further. As high as interest rates are, at least we are nowhere near the 15.5% (Prime) we experienced during the crash back in 2018,” he notes.
Although a cut did not occur at this meeting, Goslett remains hopeful that we will still see interest rates lower by roughly 1% over the course of the year. “Given the dynamic nature of the global economy and the domestic factors affecting South Africa, it is difficult to predict with any certainty what the MPC might decide to do at future meetings. However, provided that there are no dramatic changes in key economic indicators such as inflation, unemployment, GDP growth, and geo-political stability, it is reasonable to expect some relief in the form of an interest rate cut in due course,” says Goslett.
Until then, Goslett expects that growth within the local housing market will remain muted owing to affordability issues. “Each suburb and price bracket will be affected by interest rates in varying ways. To find out what trends are emerging in your neighbourhood owing to the interest rate, speak to a local real estate professional for some free insights,” he concludes.
Interest rate stability welcomed, but rate cuts urged
The decision of the MPC to retain the repo rate unchanged is important for stability as we head towards the elections, commented Samuel Seeff, chairman of the Seeff Property Group.
While we always hope for a rate cut, the decision was largely expected in view of the persistent high inflation rate. Inflation increased again in February (to 5.6% from 5.3% in January) which puts it near the upper limit of the Reserve Bank’s target range. The MPC was therefore unlikely to provide any interest rate relief at this time.
Nonetheless, the market remains upbeat that rate cuts are imminent and should come by mid-year. The economy is in somewhat of an impasse, and needs a boost, and with that the property market too. Seeff says further that the higher than necessary interest rate is impacting on the market, both in terms of sales volumes and prices.
There has been a notable decline in sales volumes since the middle of last year and price growth has stalled to just about under 1% which is not a great incentive for sellers. It is still good for buyers though who, despite the higher borrowing costs, can find good deals in the market.
The flat price growth means that property prices in many areas are very similar to what they were two years ago which is quite unheard of and a huge benefit for buyers. At the same time, there are many motivated sellers who are willing to look at serious offers.
Although more people are selling for financial reasons and consumers are under enormous pressure, the banks are still signalling that there has been no notable increase in distress in the market. Seeff says there is unfortunately little room for bargain hunters in the property market. If you are a serious buyer, however, you are likely to find a good price right now, and can benefit once the interest rate comes down.
Bank data further shows that mortgage lending continues to favour the market with stronger approval rates and lower deposit requirements compared to the pre-pandemic period. First-time buyers are also still able to find full 100% bonds, and in some instances with an allowance for costs on top of that.
The upside in the current market is that it is ticking over as buyers look to take advantage of the lower prices. Sellers, however, should be aware that the slowed growth and weaker demand means buyers are looking to negotiate. Realistic pricing is likely to attract buyers while overpricing or testing the market will yield no results. If the price is right and the buyer sees the value, they will pay the price.
Cut in interest rates will stimulate property market
Jonathan Kohler, founder, and CEO of Landsdowne Property Group says: “The property market needs a cut in interest rate to stimulate and increase sale volumes.
“We continue to see increased activity especially in the Western Cape, mainly driven by semigration as many homeowners relocate from Gauteng and KwaZulu-Natal in search of quieter lifestyles.”
Data from Lightstone shows that the Western Cape continues to benefit from semigration as ratepayers seek better governed municipalities with good infrastructure, governance, and unrivalled lifestyles. During 2019 and 2023, sales of properties priced between R100 000 and R20 million rose from 23% to 27%, while Gauteng saw sales fall from 43% to 29%.
Kohler said buyers are increasingly purchasing properties in secure lifestyle and gated communities. “We are also seeing rising demand for rental properties – and this bodes well for the buy-to-let market.”
Landsdowne, which was recently appointed as asset managers for Orlando Towers Estate, the first sectional title and lifestyle development in Soweto, says many residents at this estate are first-time buyers which speaks to the importance of home ownership even in a difficult market.
"South Africans are probably breathing a collective sigh of relief today that the repo rate didn’t go up another 25 basis points”.
Lew Geffen Sotheby’s International Realty CEO Yael Geffen says given the dismal inflation numbers for February, which was the second consecutive month of rising inflation, “South Africans are probably breathing a collective sigh of relief today that the repo rate didn’t go up another 25 basis points”.
“But the Monetary Policy Committee leaving the prime lending rate at a 15-year high of 8.25% isn’t exactly cause to celebrate, either,” says Geffen.
“For the past few years South African consumers have been the proverbial small kid on the playground; the kid whose lunch money has been stolen by the school bully so many times that he’s relieved nothing happened today, instead of being outraged at the fortune he’s lost in the past couple of years since the repo rate rocketed up 4.75%.
“Think back; for a while there during the pandemic, which wasn’t that long ago, the repo rate was 3.5%.
“Since then, the economy has shed hundreds of thousands of jobs and the real term value of salaries of those who are still lucky enough to be employed has dropped by nearly 7% compared to pre-pandemic household income. This while the interest rate has more than doubled!
“There is no universe in which that math computes to anything but disaster for households that are already overburdened by debt.”
Geffen says with prospects of a rate cut in the first half of the year now all but gone, broad revitalisation of South Africa’s property market is likely to be delayed.
“Buyers are likely to be cautious, waiting to see what inflation does in the second half of the year. If lending rates come down, the market will see a sharp rebound,” Geffen predicts.
SA Reserve Bank Governor Lesetja Kganyago’s announcement that the repo rate remains unchanged, is unsurprising but disappointing, according to High Street Auctions Director Greg Dart.
“February’s dismal inflation figures left little wiggle room for the MPC.
“Under the circumstances its decision was as depressing as it was responsible, but what’s unfortunate is that South Africa’s macro-economic realities have been unhealthy for so long that short of waving a magic wand, the government hasn’t given the MPC much to work with.
“Consumer inflation reached 5.6% last month – far above the 4% to 4.5% middle ground the central bank wants.”
Dart says the nation’s power crisis remains the largest barrier to local and international investor confidence, while inflicting severe damage to the economy.
“The Reserve Bank governor noted today that SA’s struggling economy performed worse than expected in the fourth quarter of 2023, expanding by just 0.1%. He estimated that loadshedding shaved 1.5 percentage points off GDP last year, leaving us with a dismal annual growth rate of just 0.6%.
“These aren’t conditions in which the property sector will flourish.
“Many investment decisions are likely to be delayed until after the election, when investors will have a clearer picture of the country’s economic future".
Optimism abounds as interest rates remain unchanged
SARB's announcement was widely welcomed, although a much-anticipated interest rate cut failed to materialise, with the prime lending rate remaining at 11.75%.
“All signs at the end of last year pointed towards the beginning of a downward interest rate cycle in the near future. Unfortunately, inflation just hasn’t played along yet,” says Leonard Kondowe, National Manager at Rawson Finance. Kondowe says local factors like loadshedding, logistical constraints, government debt and the outbreak of Avian Flu have all contributed to higher-than-expected inflation. This has been exacerbated by ongoing global conflicts and geopolitical tensions, high US inflation and interest rates, and a struggling rand.
“Realistically, we’re now looking at interest rate cuts to gradually start from the next quarter of 2024,” says Kondowe. “For homeowners – and any other South Africans paying off prime-linked loans – this means buckling up for a few more months of lean times ahead.”
He urges a proactive approach for those struggling to keep up with their debt repayments. “If you are at all uncertain of your ability to meet future bond repayments, do yourself a favour and speak to your lender today,” he says. “You’ll be amazed at how open they are to finding a workable compromise that will minimise the potential of you getting into real difficulties and potentially losing your home.” Kondowe also recommends taking stock of your financial commitments to minimise any unnecessary expenses sooner rather than later.
“Take a close look at recurring expenses like subscriptions, memberships and contracts and ask yourself whether they’re really delivering value for money,” he says. “Also consider removing the temptation of store accounts and credit cards – you’d be amazed how quickly these short-term debts add up and erode your disposable income.”
For those able to create a little financial wiggle room, Kondowe strongly advises putting every available cent towards home loan repayments.
“This is a great way to reduce the overall interest you pay on your loan, and give yourself a little financial cushion in the form of accessible equity in your bond,” he says. “It’s very easy to set up a recurring transfer that automatically supplements your bond repayments each month, putting your hard-earned money to work in your favour while keeping it out of reach of passing temptation.” As for how the property market will respond to the interest rate announcement, Kondowe remains positive.
“With cuts still on the horizon, we expect activity to continue increasing steadily. Cash buyers will still remain active, as will those with more resilient finances able to weather a few months of higher repayments in order to benefit from advantageous property prices and the future interest rate decline. As for first-time buyers, it will be beneficial for them to get a prequalification before they enter the property market so they know exactly what they can afford and plan their finances accordingly. ”
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