The decision by the Reserve Bank to cut the repo rate by 25bps is welcome news for property and the economy, but more is needed, says Samuel Seeff, chairman of the Seeff Property Group.
This brings the repo rate down to 7.75% and the prime rate to 11.25%.
This is the second successive cut, bringing the rate down by a total of 50bps this year. It follows the US Fed which in fact provided interest rate relief of 75bps, along with rate cuts by the BoE and EU Central Bank recently.
While welcomed, Seeff notes that the bank missed an opportunity to provide a more meaningful 50bps cut and a real economic boost.
Especially, given that inflation dipped beyond expectation to just 2.8% (from 3.8% in September), putting it below the target range of 3%-6%. It is also the lowest since the pandemic and below the pre-pandemic level of January 2020 when the prime rate was reduced to 9.75%.
While this rate cut is set to inject further energy into the housing market, Seeff says more is needed to kickstart the economy.
It desperately needs growth and a push for jobs, and lower interest rates are needed to do that.
On the back of more positivity flowing from the GNU (Government of National Unity), the lower interest rate, lower inflation, and continued absence of loadshedding, the economy and property market is poised for growth, but can do with more rate cuts.
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, price, and values.”
Higher demand will therefore drive greater turnover in areas that have been in a slump for the last year and longer such as Gauteng, Gqeberha, Mpumalanga, and Limpopo.
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, we could arguably see price growth of up to 15%-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.”
The September rate cut sparked positive sentiment, with data from Standard Bank indicating an uptick in home loan applications and new home loan approvals.
“The increase in home loan activity is largely due to improved economic conditions and lower inflation, but affordability remains a challenge for many,” says Toni Anderson, Head of Standard Bank Home Services.
“We’re hopeful that the further rate cuts expected next year will have a positive impact on household incomes.”
As interest rates continue to fall, homeownership will become more accessible due to lower monthly repayments.
Not only does this benefit existing homeowners who are managing their repayments, but it also opens the door for more first-time buyers who have been waiting for the right time to enter the market.
“With improving affordability, we expect to see sustained growth in home loan applications and property purchases,” says Anderson.
“We’re excited to support more aspiring homeowners, especially first-time buyers. At Standard Bank, we’re now able to offer first-time buyers up to 108% of the loan amount.”
As a result of the 25bps rate cut, mortgage repayments will reduce by:
(Based on a 20-year repayment period at the prime rate)
