The Monetary Policy Committee’s (MPC) decision to keep the repo rate unchanged at 8.25% is “expectedly disappointing”.
“This means the prime lending rate will have been at a 15-year high of 11.75% for more than a year, because the current rate was set by the MPC at its May 2023 meeting, and consumers have had no relief since. Economists have been saying for some time that we were unlikely to see an interest rate cut this month. But like Monty Python’s Spanish Inquisition, what wasn’t expected was Reserve Bank Governor Lesetja Kganyago’s strong indication that the repo rate probably wouldn’t come down at all this year.
“In fact, we might have to wait for Q2 2025 for any loosening of the debt noose that’s been strangling consumers for the past few years. For a time during the Covid pandemic, the repo rate was 3.5%. It’s now at an eye-watering 8.25% while headline inflation has sky-rocketed, hundreds of thousands of jobs have been lost and consumer debt is at record levels.”
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, shares his insights saying that that this announcement will be a bitter pill to swallow for most South Africans. “Although it has been predicted by many economists that the interest rate cutting cycle will be pushed out to begin sometime in 2025, most consumers undoubtedly would have been hoping for a cut all the same".
Looking at how this decision will affect the housing market overall, Goslett notes that while the demand for real estate remains strong, average house price growth continues to be hamstrung by poor economic growth and unfavourable interest rates. “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,” he notes.
Elaborating on this, Goslett explains that given the high interest rates, buyers are unable to qualify for (and most likely also unwilling) to pay high prices for property. “House price growth is then slowed because sellers have to realign their asking price to what buyers are willing and able to offer within the current market.”
Cautioning consumers that it may still be a long while before we see an interest rate cut, Goslett advises consumers to manage their debt levels closely and to reach out for help if they notice that they are in over their heads. “It is easier to recover from a bad financial position the sooner you are able to reach out for help and make a plan through your financial institution,” he recommends.
Geffen continued that the citizens in Team SA will ultimately be the losers if the MPC keeps moving the goalposts, but on the plus side, in the short-term the outlook for the property market is more positive.
“The pre-election jitters that have created volatility in the market in recent months will settle in the second half of the year, and more investors will show more optimistic sentiment.
“There is also likely to be an increase in residential sales in the second half of the year, with market activity intensifying further next year when the repo rate eventually comes down.”
Meanwhile, Samuel Seeff, chairman of the Seeff Property Group, agreed with Geffen's sentiment that that the outcome was expected, and shared that it is disappointing for the economy and property.
Seeff says that instead of bringing down inflation, the highinterest rate has stymied the economy. 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 on the rise.
"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".
In light of the prolonged pressure on the economy, Seeff says an urgent kickstart is needed. Rate cuts need to take effect sooner rather than later. Holding back is simply doing more damage to the economy. A growing economy will also boost the value of the Rand, so concerns about the currency should not be a motivator to keep the rate at the current high level.
Unchanged repo rate is positive for the property market
Tyson Properties CEO, Chris Tyson, also not surprised by the decision agrees with economists who have said that uncertainty regarding domestic inflation outcomes and the continued volatility of the rand during the lead up to the election means that any drop in the interest rate will, at best, take place at year end.
Although most economists have revised growth in 2024 GDP downwards to around 1%, Tyson is more optimistic and believes that now, post the general election, greater certainty about the direction in which the country is moving politically will result in some economic recovery. Should this be supported by a continued reprieve from loadshedding, there is every reason to expect 2024 to end on a more optimistic note.
READ: Understanding residential property ownership in South Africa
High Street Auctions Director Greg Dart who was also not surprised by the MPC's decision to hold the repo rate steady, says that the MPC statement explaining the repo decision was spot-on describing the country’s economic start to 2024 as ‘uncertain’. Given that SA was heading for a general election, global markets were incredibly volatile and the geo-political landscape has been anything but stable, ‘uncertain’ is perhaps the understatement of the year.
“That said, despite consumer inflation being slightly higher than optimal, recent market developments have been positive – an example being the rand standing out as one of only five emerging market currencies to have strengthened this year.
“There is no doubt, however, that this week’s general election will have a massive impact on the country’s economic outlook, which Kganyago also referenced when he said: ‘Markets remain focused on the direction of domestic policy, a theme that has dominated many investor conversations over the past few months. Conditions remain uncertain, but we expect greater clarity in due course.’
“The South African economy has unequivocally suffered in recent years, in large part due to bad policies, a lack of will to follow through, corruption and grid instability.
“The new leaders moving into government have an opportunity, now, to change this. Pro-market policies and strong economic reforms will revitalise global investor confidence in the country, and bring about faster economic recovery.”
Despite the unchanged prime lending rate, the property market is likely to benefit from increased investments in the second half of the year.
“Global trends consistently point to a stabilisation and recovery of the real estate sector after any election, and this one – however ground-breaking – should be no different.
“The market will show increased activity in the second half of this year, with that momentum properly taking off early next year when the interest rate is projected to improve," says Dart.
Tyson says that, since the repo rate hit a 14-year-high in May 2023, South Africans have been both resilient and patient. Even without a drop in the interest rate, he says that a more stable environment could impact positively on the property market with many potential investors who have been sitting on the fence possibly deciding to enter the market.
The flip side of continued uncertainty and an inflation rate that may hover above 5% for the rest of the year thereby negating the possibility of a rate cut is a continued boom in the rental market. This has already benefitted property investors and will continue to ensure that this remains a buyers’ market.
