Repo rate relief gives property market a boost

Repo rate relief gives property market a boost

MAIN IMAGE: Samuel Seeff – chairman of the Seeff Property Group, Rhys Dyer – CEO of the ooba Group, Brad Bendall – BetterBond head of sales, Adrian Goslett – CEO of RE/MAX Southern Africa, Berry Everitt – CEO of the Chas Everitt International property group, Dr Andrew Golding – CE of the Pam Golding Property Group, Stephen Whitcombe – MD of the Firzt Realty,  Yael Geffen – Lew Geffen Sotheby’s International Realty, Chris Tyson – CEO of Tyson Properties

Editor

Last week, the Reserve Bank cut the repo rate for a second time by 25bps, bringing it down to 7.75% and the prime rate to 11.25%.  This cut follows the US Fed, which provided interest rate relief of 75bps, along with the BoE and EU Central Bank rate cuts.

Locally, inflation recently dipped beyond expectation to just 2.8% (from 3.8% in September), putting it below the target range of 3 % – 6%. Samuel Seeff, chairman of the Seeff Property Group, notes that inflation is now at its lowest since the pandemic and below the pre-pandemic level of January 2020 when the prime rate was reduced to 9.75%.

The market shows early signs of improvement

Based on this, Seeff anticipates the residential property market to rerate in 2025. Where we’ve seen subdued or benign to no growth scenarios for many months and years in some areas, he believes it will start turning next year in terms of higher volumes, prices, and values.

Rhys Dyer, CEO of the ooba Group, agrees, “October marked the first significant shift in consumer demand for property, with home loan applications rising 16% compared to October 2023 and 27% on the previous month. This demonstrates the impact of even a single 25-basis-point interest rate reduction.”

Brad Bendall, head of sales at BetterBond, says the originator has already seen a noticeable recovery in the property market since September, with its home loan activity jumping by 30% in October compared with the same period last year.

“The effect of any interest rate cut is usually felt several months after the market has adjusted to the lower rates. Coming off the back of an interest rate cut in September, this further cut should line us up for more favourable property market conditions in the coming months,” says Adrian Goslett, CEO of RE/MAX Southern Africa.

His advice for buyers, sellers, tenants and landlords is to lean on the advice of their trusted real estate professional now more so than ever. “Timely advice from a real estate practitioner is vital when property market conditions are changing – which I predict it will be in the months to come. Gaining a real estate agent’s insights early will help clients navigate whatever conditions may come their way,” he concludes.

How much will homeowners be saving per month?

Seeff’s calculations show that mortgage repayments will be reduced by:

R750 000 bond – from R7 998 to R7 869 – thus saving R129
R900 000 bond – from R9 598 to R9 443 – thus saving R155
R1 000 000 bond – from R10 664 to R10 493 – thus saving R171
R1 500 000 bond – from R15 996 to R15 739 – thus saving R257
R2 000 000 bond – from R21 329 to R20 985 – thus saving R344
R2 500 000 bond – from R26 661 to R26 231 – thus saving R430
(Based on a 20-year repayment period at the prime rate)

Berry Everitt, CEO of the Chas Everitt International property group, explains that the rate cut; “Will mean lower repayments on all sorts of debt, including car finance, personal loans and credit card balances as well as home loans, and combined with a lower cost of living, will create significant financial relief for most households.

“As far as existing homeowners are concerned, it will reduce the minimum monthly repayment on the average home loan and lower the risk of bond defaults across the board. This is important because the latest FNB Property Barometer figures show that almost a quarter of those currently selling their homes are doing so because they are in financial difficulty, while the National Credit Regulator predicts that almost 8% of borrowers will be in arrears to some degree during the first quarter of next year.”

What does this second consecutive cut mean regionally?

Higher demand will drive greater turnover in areas that have been in a slump for the last year and longer, such as Gauteng, Gqeberha, Mpumalanga, Limpopo, and so on. Most of these areas sit with surplus stock, and while we anticipate higher sales volumes, Seeff says prices will only start rising once stock levels are reduced, he adds.

In contrast, Seeff believes we could arguably see price growth of up to 15% to 20% next year in areas where there has been reasonable growth this year. These include mostly the Western Cape and other coastal regions, where stock levels are depleting, and shortages are already becoming evident.

Everitt believes we’ll see “A bumper sales season this summer, especially in popular coastal areas such as Cape Town, the West Coast, the Whale Coast, the Garden Route, but also in Johannesburg, where there is still exceptional value to be had, and many existing owners are now eyeing upgrades before the additional rate cuts anticipated in 2025 push prices up too much.”

Dr Andrew Golding, CE of the Pam Golding Property Group, concurs, stating that “In Gauteng, for example, where house prices have been under pressure for some time, lower interest rates appear to have sparked a marked increase in activity – more so than in the Western Cape (according to the Q3’24 FNB Estate Agent Survey). Similarly, regions which typically have high levels of first-time buyer activity – such as the Free State, Mpumalanga and Gauteng South and East – are likely to benefit more from increased first-time buyer demand as housing affordability improves and young adults are able to shift from the rental market to purchasing their first home.”

“Furthermore,” says Dr Golding, “it is not only interest rates that have a positive impact on the housing market. Improved confidence in the wake of the formation of the GNU and easing price pressures – particularly repeated cuts in the petrol price – are all contributing to an easing in financial pressure on households, coupled with increased market sentiment, thereby reviving demand from buyers across all sectors of the market, including the luxury market.

A boost for the affordable market

Everitt says the biggest impact of this rate cut and those still to come will be at the bottom end of the market, where prospective buyers are almost wholly credit-dependent and where increased lending caution on the part of banks has caused the minimum deposit requirements to rise steeply over the past year.

“Potential buyers in this sector will now be able to find more properties within their budget and become homeowners instead of continuing to rent. This will enable more existing owners to move up the property ladder and also create more demand for units in new developments, which have been largely absent from the market since 2022 but have begun springing up again in recent months.”

Advice for homeowners

Stephen Whitcombe, MD of the Firzt Realty notes that these rate cuts and those predicted for next year hold out the prospect of big future benefits for existing homeowners if they decide to put all the monthly repayment savings back into their home loans now instead of spending the extra cash. All they need to do is maintain their repayments at the same level as they were in August, and the fact that inflation rate has dropped so much in the past few months (to 2,8% in October) should make it relatively easy to do this without feeling too much strain on household budgets.

 Table 1: Potential benefits from adding to your minimum bond repayment

Remaining bond amount at 11% (R)Savings from 0,25% cut SepSavings from 0,25% cut NovAdditional R500 from salary increaseTotal that could be added to   minimum   instalmentMonths cut from 20-year repayment periodTotal home loan interest savings
750 00012912950075859328 761
1m17317250084552387 449
1,25m21621550093145442 312
1,5m259258500101744495 176
2m346343500118940597 322

Table 2: Potential bond benefits from one additional repayment per year

Remaining bond amount at 11.25% (R)Example one-off additional repaymentMonths cut from 20-year repayment periodTotal home loan interest savings
750 0005000645 912
1m5000446 221
1,25m5000346 410
1,5m5000346 536
2m5000246 675

What can we expect in 2025?

Lew Geffen Sotheby’s International Realty CEO Yael Geffen cautions, “One can’t ignore the giant elephant in the room, though. One of the biggest variables in South Africa’s economic growth in the new year is the re-election of Donald Trump as US president.

“The rand has weakened from R17.29/$ to current levels of around R18.15 since the US election earlier this month. The dollar strengthened on the back of Trump’s stated intentions of hiking import tariffs and lowering taxes, which could be challenging for South Africa’s economy because a weaker rand will fan inflation.

Dyer speculates that while the recent US election results may have created uncertainty around future economic policy, more clarity will emerge once the new administration takes office. “On one hand, tax cuts and deregulation may drive growth, but on the other, potential tariff hikes and immigration limits could increase inflation, restricting future interest rate cuts by the US Federal Reserve.”

Regardless of the outcome, Dyer believes that it is likely that the SARB will take a more cautious approach to the timing and extent of future interest rate cuts. “We do, however, hope that these considerations will not hinder the progress being made in the homebuying sector, and that rate cuts will continue into 2025 as initially projected.”

Chris Tyson, CEO of Tyson Properties, issues a word of caution, noting that South Africa unfortunately remains vulnerable to external pressures, including the resurgent dollar on the back of Trump’s re-election and rising petrol prices due to ongoing conflict in the Middle East. These inevitably have a knock-on effect on household expenditures.

As a result, going into 2025, Tyson advises buyers to carefully consider their choices, taking location in relation to travelling distances and even facilities that allow them to work from home into account. Homes with solar power and water collection facilities can also lower utility bills which will rise in the new year.

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