Property firms have warned that the Reserve Bank's decision to keep the repo rate on hold at 8.25% is putting more pressure on the property market as affordability concerns deter prospective buyers.
Pam Golding Property Group CEO Andrew Golding said while the outlook for the local housing market has improved, economic conditions remain tough, keeping housing market activity subdued.
“Nationally, applications from first-time buyers declined once more in May 2024, reducing to 44.3% in June — a seven-year low — as household finances remain under pressure. First-time home buyers are unlikely to return to the market en masse until interest rates are cut.”
Jawitz Properties CEO Herschel Jawitz said the Bank lost an opportunity to show “foresight and courage” by cutting interest rates, saying that expectations for a rate drop in the US this year gave it room to cut rates this week.
“Early indications are that US rates are set to drop this year, the rand is marginally stronger and we have had two consecutive fuel price decreases, all of which are positive for our inflation rate.
“On the flip side, the [Bank] has shown consistency in its policy decisions and the current inflation rate still sits above the midpoint of the inflation target. The interest rate outlook still looks positive for a rate cut later this year.”
With interest rates as high as they are, affordability is an issue for most buyers
— CEO of Remax South Africa Adrian Goslett
Regional director and CEO of Remax South Africa Adrian Goslett said while the company grew unit sales in the year to June, the property market overall was subdued due to high interest rates and affordability concerns.
“With interest rates as high as they are, affordability is an issue for most buyers. Sellers who acknowledge this and price their home at fair market value typically do not have a problem finding a qualified buyer.”
Announcing that the repo rate would remain unchanged, Reserve Bank governor Lesetja Kganyago said while global inflation continued to ease, in most economies it had not yet stabilised in line with targets. Two of the six members of the monetary policy committee (MPC) favoured a 25 basis points cut.
“Clearly, the battle against inflation is not yet won, and for this reason global interest rates remain elevated. At the same time, there has been some policy divergence which reflects different country circumstances. Since our last meeting, policy rates were lowered in Canada, Switzerland, and the Euro area, but were kept unchanged in the US, the UK, and Japan.”
He said central banks globally were concerned that lower inflation outcomes were not being sustained. While the Bank saw average inflation expectations of 5% in 2025 and 4.9% two years ahead, this was “still uncomfortably above the Bank's 4.5% expectation”.
The FNB property barometer for April maintained a cautiously optimistic outlook for the remainder of the year, pointing to an expectation of slower price increases and the possibility of interest rate cuts.
"[The affordable housing market] recorded a higher activity rating compared to the traditional market. Following the recent support from ultra-low interest rates, buying activity in this segment appears to be further supported by a search for less expensive properties, as elevated interest rates and stricter lending standards stretch affordability for many.”
Standard Bank Group head of South Africa macroeconomic research Elna Moolman said the MPC decision was consistent with the bank’s expectations.
“The Reserve Bank’s decision to keep the repo rate constant was in line with our and the market’s expectations. Interestingly, two of the six members would have preferred an interest-rate cut instead.”
Treasury economist at Investec, Tertia Jacobs, said the balance of risk assessments was on the upside, indicating concerns from MPC members about whether the US Federal Reserve will start cutting rates as early as September.
“The decision by the MPC to keep the repo rate decision unchanged was split and it showed that their members are not in full agreement about some of the inflation dynamics. The inflation forecast was revised lower and it showed that inflation can return to the midpoint of the target by the fourth quarter on a sustainable basis.”
North-West University Business School’s Prof Raymond Parsons said if inflationary expectations continued to gradually unwind, there was still a strong possibility of lower borrowing costs for businesses and consumers by the end of 2024.
He said global factors, such as easier US monetary policy in the near future, would influence MPC decisions on the timing and extent of rate cuts. Any eventual interest rate easing by the MPC was likely to be modest, possibly an initial reduction of 25 basis points.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.