The South African Reserve Bank has announced that interest rates will once again remain unchanged, maintaining the prime lending rate at 11.75%.
While ongoing economic pressure continues to affect buyers’ affordability, Leonard Kondowe, National Manager at Rawson Finance, says lenders still 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. The higher an applicant’s risk profile, the higher the interest rate lenders will require them to pay – assuming they are willing to take on the risk at all,” says Kondowe. “Taking the time to address outstanding debt, minimise expenses and save for a reasonable deposit can have a very real effect on your eventual bond offer, and the total interest you’ll end up paying over the lifetime of your mortgage loan.”
As for how the property market responds to the interest rate announcement, Kondowe says it is with a positive outlook.
“With cuts still on the horizon, we expect property activity to continue increasing steadily. Cash buyers will still remain active, as will those with more resilient finances able to weather a few months of their high repayments in order to benefit from advantageous property prices and the future interest rate decline. As for first-time buyers, it will be beneficial for them to get a pre-qualification before they enter the property market so they know exactly what they can afford and plan their finances accordingly. ”
“We are confident that the interest rate will come down in future, but we are not certain when it will happen or by how much,” he says. “Instead of relying on what might come, focus on finding a property with good long-term equity growth potential, and building the financial resilience to handle any unforeseen bumps in the road.”
Unchanged repo rate echoes mounting positive sentiment in SA says Tyson Properties CEO Chris Tyson
Tyson points out that the announcement comes on a momentous day for most South Africans – the re-opening of Parliament and a peek at the plans of the Government of National Unity for the next five years as well as Mandela Day when the vision of the country’s greatest statesman is celebrated.
He says that the country voted for change at the end of May and, although the outcome of the elections may have seemed indecisive for some, most South Africans remain hopeful that many of the lagging challenges will now be tackled. So far, there were indications that load shedding remains under control and that infrastructure investment will again gather momentum – developments that will not only bode well for markets but attract investment and kickstart economic recovery.
“Although there has been no drop, we are moving into very positive territory after the national elections which paves the way for a drop later this year. Meanwhile, for those who are in the market, it is a good time to buy at the lower priced properties in the market,” Tyson advised.
However, he advises sellers to continue with caution, taking special care to price their properties correctly in a highly competitive market where buyers are spoilt for choice.
The SARB lost an opportunity to show some foresight and courage with regards to interest rates, says Herschel Jawitz, CEO
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 SARB have shown consistency in their 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.
Another month without interest rate cut
According to Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, growth within the property market will remain muted until the rate cuts materialise, which many economists predict might occur in September or November this year.
“While the market overall has been subdued owing to high interest rates and affordability concerns, the property market is still active. In fact, looking at how the RE/MAX SA network has performed, as at end June, we are 0.75% up on number of units sold compared to last year. We are also 4% up on registered sales totals and 10% up on reported sales totals compared to last year. Although this is not true for all in the industry, RE/MAX SA continues to show growth despite the challenging market conditions,” says Goslett.
Unchanged interest rate hugely disappointing for property and economy
The decision by the Reserve Bank to keep the repo rate unchanged at 8.25% (11.75% prime rate) is hugely disappointing for the property market and economy, comments Samuel Seeff, chairman of the Seeff Property Group.
The decision is out of step with the economic needs of the country, and perhaps a little tone deaf in terms of the plight of consumers and homeowners, especially since it was a split decision by the MPC members, he says further.
Economy needs a kick-start, says Dr Andrew Golding, chief executive of the Pam Golding Property group
Given that the country’s economic growth remains tepid, a reduction in the interest rate would have given the economy a much-needed kick-start, particularly as inflation is increasingly under control.
There is a case for local interest rate relief, firstly because there seems to the likelihood of a US rate decrease following evidence of a slowing economy, a softening labour market and easing price pressures in recent weeks, but also because we have had two recent fuel price cuts – with the fuel price currently looking set to remain unchanged in August. Coupled with this the strengthening in the Rand following the formation of the GNU (Government of National Unity) is helping to temper imported price pressures, and local food price pressures have also abated.
The likelihood that interest rates will begin to be cut at the MPC meeting in September (2024) has increased since the last (May) MPC meeting. This is the result of improvements in both the local and US inflationary pressures. The MPC is likely to prefer to wait for the US to cut - which is not imperative but would increase the comfort for the MPC that the time is right for cutting - and further evidence that local price pressures are easing.
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