The South African Reserve Bank announced this week that the interest rate will be cut by 25 basis points. The repo rate will now be 6.5% and the prime lending rate of banks will be 10%. The cut is the first move since a 25 basis points cut in July 2017.
The cut comes as inflation eased to 4% in February 2018, well within the bank’s 3 to 6% target range. Inflationary risk has reduced with the stronger and more stable rand since December last year. In addition, the decision by Moody’s to maintain South Africa’s credit rating at investment grade has boosted the economic outlook.
Economist and market experts are of the opinion that interest rate cuts are likely to remain unchanged for the rest of the year.
Read more: What is the interest rate?
The decision by the SARB’s Monetary Policy Committee to cut the repo rate has been widely welcomed by the property industry.
Private Property CEO, Simon Bray
The year has started very positively for the property market. New political leadership has brought much-needed stability to the country, and an increase in business and consumer confidence with it. This new-found stability together with the Moody’s decision to maintain our investment rating and the stronger rand, have put in place the fundamentals for a much better performance for the market.
This rate cut and the improved cash flow it brings to households will further stimulate the market and take some of the sting out of the VAT hike that comes into effect in April. . Many potential buyers that were previously uncertain about entering the market due to political or affordability reasons, could now be convinced that the time is right to enter the market.
Samuel Seeff, Chairman of the Seeff Property Group
Seeff said this will provide much needed stimulation for the market and, after a very flat 2017, will hopefully be an energy boost to encourage buyers and investors.
Seeff said further that these developments are good news for the property market. While the outlook for 2018 is much better than last year, it remains largely a buyers’ market for the time being and sellers need to maintain a more conservative approach to their price expectations.
On the upside, the last year has seen lots of new stock come onto the market and Seeff said that it is an excellent time to buy property, especially if it is your primary home. Prices have remained fairly flat over the last 12-18 months as the market took a breather and there are many motivated sellers.
This interest rate cut is a great incentive for hesitant buyers and there is no reason to wait, it is a good time to buy, he added.
Dr Andrew Golding, CE of Pam Golding Property Group
Dr Golding believes that the interest rate cut, coupled with Moody’s decision to not only leave South Africa’s credit rating unchanged at one notch above junk status, but to also upgrade the outlook from negative to stable, are positive factors which should provide welcome stimulus for the residential property market.
Dr Golding says interest rate cuts are always positive for the housing market. “However the benefits of this modest reduction may take longer than usual to be felt as households will need to adjust to the hike in VAT and the general increase in the tax burden via the fuel levy and other tariffs such as electricity, water and property rates.
“Having said that, for the calendar year to date and based on Pam Golding Properties’ sales, activity in the marketplace remains brisk in sought after hubs and locations and there is generally a solid demand for properties on offer at market-related prices.
“Buyers continue to demonstrate a willingness to embark on first-time acquisitions as well as properties for upgrading or downsizing, or simply relocating, depending on their individual requirements.
Adrian Goslett, CEO of RE/MAX of Southern Africa
“I think now was the perfect opportunity to stimulate the economy with a rate cut. Leading up to today, there have been many encouraging signs and consequent offshoots that have impacted the economy positively. We applaud the decision of the monetary policy committee to make the cut, as we believe that this will continue to stimulate growth and strengthen investments,” said Goslett.
With the VAT increase set to take effect in April, a lowered interest rate also alleviates some of the financial strain consumers are bound to face during this time.
“The rates cut provides consumers with some much-needed financial relief. Shrewd citizens will use this opportunity to save for future investments, or reroute the money they’re saving straight back into their bond repayments,” Goslett advises.
Herschel Jawitz, CEO of Jawitz Properties
Despite the looming increase in VAT and the petrol price levy, consumer confidence will receive a much needed boost from the rate cut. The impact of the rate cut will be a decrease of R170 per month on a million rand bond over 20 years.
According to the latest FNB Research, South African consumers are in a better financial position in terms of debt to income levels, which will be further improved by this rate cut. Even with improved sentiment as a result of ‘Ramaphoria’ the residential market remains sluggish with sales volumes tight and property price growth flat. The rate of mortgage lending from the retail banks has improved as has the average rate concessions given to buyers, which will be helped by the rate cut.
The rate cut will certainly give buyers more food for thought, however, it will still be some time before the imbalance between supply and buyer demand translates into better price growth. Improved consumer and business confidence will continue to be the key driver in the recovery of the residential market.”
Read more: How the rate cut affects your bond
