Given the high interest rates, buyers are unable to qualify for (and most likely also unwilling) to pay high prices for property. Photo: Simphiwe Mbokazi / Independent Newspapers.
The property sector is up in arms following the South African Reserve Bank (SARB) governor, Lesetja Kganyago’s announcement to keep interest rates in the country unchanged.
This comes after the SARB’s monetary policy committee (MPC) met this week to decide on the country’s repurchase rate (repo rate), with the outcome, remaining at the 14-year high of 8.25%.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, said that this announcement will be a bitter pill to swallow for most South Africans.
“Although it has been predicted by many economists that the interest rate cutting cycle will be pushed out to begin sometime in 2025, most consumers undoubtedly would have been hoping for a cut all the same,” Goslett said.
Looking at how this decision will affect the housing market overall, Goslett said that while the demand for real estate remains strong, average house price growth continues to be hamstrung by poor economic growth and unfavourable interest rates.
“Although each suburb and each province will be affected differently by this, from a national perspective, house prices are unlikely to deliver stronger growth rates until the broader economic conditions become more favourable,” he said.
Goslett further said that given the high interest rates, buyers are unable to qualify for (and most likely also unwilling) to pay high prices for property.
“House price growth is then slowed because sellers have to realign their asking price to what buyers are willing and able to offer within the current market.”
Dr Andrew Golding, chief executive of the Pam Golding Property group, said, “Much will now depend on future data releases and whether they provide sufficient evidence of continued progress toward the inflation target to embark on a downward repo rate cycle. However, it has become apparent that neither the Fed nor the SARB are in any hurry to cut interest rates until such compelling evidence is available.”
Golding added, “Our local economy appears to have improved somewhat in recent weeks as reduced load shedding and an easing of logistic bottlenecks have helped reduce operating costs and hence price pressures. With the election now behind us, macro-economic conditions are expected to become gradually more supportive over the next four to five months, so it is still possible that the first interest rate cut may be in September, followed by another 25bps reduction in November.“
Samuel Seeff, chairman of the Seeff Property Group, said, “The decision of the MPC of the Reserve Bank to retain the repo rate unchanged at 8.25% (11.75% prime rate) is as expected, but disappointing for the economy and property. The interest rate has been too high for too long and is negatively impacting the economy and property market. The stance of the Reserve Bank has been too hawkish. While inflation has moderated, the reality is that keeping the interest rate so high for so long has done little to bring down inflation, largely as it is not demand-driven, but rather “imported” into the economy.“
Seeff said further that instead of bringing down inflation, the high interest rate has stymied the economy. The debt servicing burden on consumers and home owners and living costs have spiked, while salary hikes have been moderate. Standard Bank also recently signalled concern that the level of home loan distress is on the rise.
Seeff added that there is a high desire for property ownership which is clearly reflected in the market. Although overall transaction volumes are slower, it remains surprisingly active, despite the economic headwinds. People want to transact and invest, but are hampered by the unnecessarily high interest rate.
In light of the prolonged pressure on the economy, Seeff said an urgent kickstart is needed.
“Rate cuts need to take effect sooner rather than later. Holding back is simply doing more damage to the economy. A growing economy will also boost the value of the Rand, so concerns about the currency should not be a motivator to keep the rate at the current high level,” he added.
BUSINESS REPORT