As was predicted by economists, the third cut in the repo rate was announced yesterday by the Reserve Bank. Although some key stakeholders in the property sector were hopeful of a 50 basis point reduction, overall they have welcomed the reduction of 25 basis point (bps), which takes the repo rate to 7.5%.
The interest rate plays a pivotal role in the property market, especially for first-time home buyers who will find more favourable borrowing conditions, and those with a home loan will see a reduction in their monthly repayments. Sellers will also benefit as they will likely realise higher offers as more buyers enter the market.
The new interest rate heralds in the potential stronger shift from a buyer’s market, although moving to a seller’s market will take some time from a national perspective. This means that the most in-demand areas can expect far more interest from property purchasers although buyers will still remain cautious in their selections as they look at how municipalities are maintaining crucial infrastructure and services.
Market commentators react
Jonathan Kohler, Founder and CEO of Landsdowne Property Group, one of South Africa’s largest residential real estate managers and estate agencies was quick to respond to the Reserve Bank’s announcement, saying: “The 25 basis point interest rate cut is a positive step for the property market, particularly in Johannesburg, where lower rates unlock significant value. The cumulative 75 basis point reduction, which amounts to three quarters of a percent is a meaningful shift. Not only does this improve market sentiment, but it also enhances affordability, potentially sparking an uptick in buying activity.
“The rate cut is particularly significant for first-time buyers who have been weighing the cost of renting against bond repayments for owning property. With interest rates continuing to fall, rental prices are becoming increasingly comparable to bond payments, making ownership a more appealing option.”
Also weighing in is Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa. “Following previous rate cuts in September and November, this additional adjustment positions the property market for potentially more favourable conditions in the months ahead, keeping in mind that the impact of an interest rate reduction typically becomes evident a few months after the market has had time to adapt to the change,” says Goslett. “This cut will also help mitigate some of the potential risks that face the South African economy following Trump’s recent inauguration. His appointment introduces new uncertainties and potential shifts in global economic policies, which could indirectly affect the South African economy and real estate market.
“If inflation increases as a result of his global trade policies, we might see the South African Reserve Bank tighten their stance around interest rates to keep inflation under control,” Goslett cautions. “Investors might also adopt a “wait and see” approach until Trump’s policy decision become clearer. If this is the case, it could have a negative impact on the local property market,” Goslett cautions.
CEO of national real estate agency, Tyson Properties, Chris Tyson is optimistic that further rate cuts are to follow despite a slight uptick in the inflation rate to 3% in December, which remains below the SARB’s benchmark of 4,5%). “Interest rate cuts by the SARB are beginning to add up to some meaningful relief for South African home owners.”
Tyson believes that the SARB will continue along the ultra-cautious trajectory that saw repeated decisions to maintain the repo rate unchanged at a 15-year high of 8.25% until September 2024, but believes there is a strong chance that the interest rate might ultimately drop to around 7%. “This will give both buyers and sellers waiting out the 2024 interest rate plateau more confidence to enter the property market.”
Over the long-term - and should the interest rate decline continue as expected - Tyson envisages that the residential property market will move from a buyer's market to a normal market within two years. “Even if the SARB begins to hold rates once more at a lower point, this should provide the property market with some stability and predictability which would entice those contemplating longer term investments to look to buying properties.”
Another perspective comes from Greg Dart, director of High Street Auctions: “Although the prudent easing does not go far enough yet to ease the rising cost of living, it supports rising confidence that South African growth is on an upwards trend, buoyed by optimism around the Government of National Unity (GNU).
“With further cuts expected later in the year - market forecasts suggest further repo rate cuts of 0.25% to 0.5% for 2025 - the property sector could expect the final rate to settle between 7.25% and 7.5%,” said Dart. “We will just need to remain wary of potential external risks, such as the U.S. trade policies and their impact on the rand.”
Samuel Seeff, chairman of the Seeff Property Group has welcomed the cut although he does say that it’s simply not enough. “A 50bps cut would have been far more meaningful. There was adequate support for the Reserve Bank to counter the economic stagnation and unemployment risks with a more robust cut. The country can no longer afford what is effectively the highest real interest rate in the world (differential between the interest rate and inflation) while the economy is limping along, barely growing, and unemployment is spiking.”
Seeff feels the lack of growth and unemployment is a far greater risk than inflation. “Given that GDP growth and employment is the most critical element right now, it seems out of step for the Bank to persist with the interest rate policy aimed at containing inflation between 3% to 6% when inflation is in any event at the bottom of the target range.
“Our view is that the Bank must prioritise GDP growth and reduced unemployment over exchange rate concerns. GDP growth and increased employment cannot be achieved with high interest rates. Only bolder rate cuts can provide the necessary economic stimulus, and there is historic precedents for the Bank to step in such as during the Covid-pandemic period for example.”
Seeff also said that while there may be a trade-off on the exchange rate and concern about the impact on investment, “a growing economy may well provide adequate counter-balance to this, and in fact encourage more investment. We could then potentially see the currency get stronger.”
