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Stable interest rate expected but disappointing. Where to from here?

Stable interest rate expected but disappointing. Where to from here?

MAIN IMAGE: Samuel Seeff – chairman of the Seeff Property Group; Dr Andrew Golding – chief executive of the Pam Golding Property Group; Adrian Goslett – regional director and CEO of RE/MAX of Southern Africa, David Jacobs – regional sales manager for the Rawson Property Group, Leonard Kondowe – national manager at Rawson Finance, and Rhys Dyer – CEO of ooba Group

Editor

The recent decision by South Africa’s Monetary Policy Committee (MPC) to maintain the repo rate at record highs has stirred discussions across various sectors, particularly the real estate market. Amidst expectations of a downward interest rate cycle, stakeholders are analysing the decision’s implications and potential effects on the economy and property sector. Let’s delve into the insights shared by industry experts and examine the current landscape and the future outlook for South Africa’s property market.

Assessment of the current repo rate situation

The decision to maintain the repo rate has sparked a debate among industry leaders. Samuel Seeff, chairman of the Seeff Property Group, holds a critical view, stating that the prolonged high-interest rate environment is detrimental to the economy and property market. 

“The high interest rate has hampered the economy instead of bringing down inflation. The debt servicing burden on consumers and homeowners 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 rising”, believes Seeff. 

Seeff underscores the pressing need for rate cuts to stimulate economic activity and alleviate the burden on consumers and homeowners. “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”.

Dr Andrew Golding, chief executive of the Pam Golding Property Group, acknowledges the cautious approach of central banks in considering interest rate adjustments. He also offers a glimmer of hope, stating, “While expectations of rate cuts have been repeatedly downgraded and delayed, there is still anticipated to be some minor relief before the 2024 year-end. However, the likely timing will depend on monitoring future data releases for confirmation that inflation expectations are anchored around the target”.

Golding points out that there have been several encouraging developments, “The news flow since the March MPC meeting has been primarily positive. Headline CPI eased to 5.2% in April – slightly better than expected – with an encouraging easing in food and services price pressures and a marked easing in core CPI to 4.6% from 4.9% in March. News of a likely 85c per litre reduction in the petrol price in June is also positive.

Furthermore, some of the upside risks to the inflation outlook have also eased recently:

  • Inflationary pressures have continued to decline in both the UK and Europe.
  • The Middle East conflict has not caused a spike in the oil price as initially feared. Instead, the concern is that US interest rates remaining higher for longer will suppress oil demand.
  • The end of El Niño, and hopefully the return of more normalised weather patterns, is positive for the outlook of food prices”.

Impact on the residential property market

The stability in the repo rate, coupled with expectations of future rate cuts, sets the stage for a potentially positive outlook for the residential property market. Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa acknowledges consumers’ disappointment but stresses the resilience of demand for real estate.

“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”.

David Jacobs, regional sales manager for the Rawson Property Group, echoes similar sentiments regarding market confidence, “There’s a lot less fear out there on the market,” he says. “Conditions certainly aren’t ideal yet, and affordability is still under pressure, but buyers and sellers aren’t paralysed with anxiety over the next interest rate increase anymore. The general consensus is that things are going to get better. It’s just a matter of when.”

While ongoing economic pressure continues to affect buyers’ affordability, Leonard Kondowe, national manager at Rawson Finance, says lenders remain eager for qualified home finance applicants.

“Applicants with pristine financial profiles can look forward to some very favourable home loan offers,” he says. “Lenders are pulling out all the stops to incentivise low risk bondholders to join their portfolios.”

Looking ahead

Industry experts anticipate a gradual improvement in market conditions, driven by potential interest rate cuts and sustained demand for property. Rhys Dyer, CEO of ooba Group, suggests that while rate cuts may be delayed, the eventual easing of interest rates will benefit both buyers and sellers in the property market.

Ultimately, Dyer believes that market conditions in South Africa’s residential property industry are perfectly poised for interest rate cuts, with all eyes on the Reserve Bank to make the call.

“Once rates begin to drop, the banks will continue to aid homebuyers by offering attractive lending conditions, propelled by their desire to restimulate the residential property and ease access to homeownership for a wider pool of buyers,” he concludes.

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