The property sector in South Africa has been hit hard by the elevated interest rates in the country.
On Thursday, the South African Reserve Bank (SARB) announced that the repurchase rate (repo rate) will remain at its 14-year-high as it continues to try and tame inflation.
This means that the prime lending rate in the country will remain at 11.75%.
The MPC decision was in line with several economists' expectations.
“As we move into the second half of the year, global inflation continues to ease. The very rapid price increases of 2022 and 2023 have receded. However, inflation in most economies has yet to stabilise in line with targets,” the governor said.
Dr Andrew Golding, chief executive of the Pam Golding Property group said, “As expected, the MPC meeting announced that the repo rate would again hold steady at 8.25%, with the prime lending rate therefore remaining at 11.75% - for the seventh consecutive meeting. 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.”
Golding further added, “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,” he further added.
Golding said that a key consideration for the MPC is inflation expectations and here too some progress has been made, with all three survey groupings (business, unions and analysts) lowering inflation expectations for the full three-year period covered by the survey.
“The MPC would prefer to see inflation expectations even lower but they are at least moving in the right direction and it is another two months before the next (September) MPC meeting - so there is time for more data releases to provide confirmation that progress is being made towards achieving the mid-point of the inflation target. 2024 is a year characterised by an unusually large number of elections worldwide, with many of the important elections having now been concluded – and generally favourably received by the financial markets. The key outstanding election, and possibly the most influential, is the US election, which remains a key source of uncertainty for markets and could increase caution among central banks.”
Impact on housing market
“From a residential property perspective, while the outlook for the local housing market has improved, current economic conditions remain tough, which is keeping housing market activity subdued and household finances under pressure. This is evidenced in the fact that according to Lightstone statistics, the average number of days a home remains on the market in SA’s five major metro markets has risen from 69 days in 2015 to 92 days for 2024 to date, while according to a recent FNB survey, one of the main reasons for selling in Q2 2024 was downscaling due to financial pressure, accounting for an estimated 21.5% of all sales recorded in their loan book,” Golding said.
Herschel Jawitz, CEO, Jawitz Properties said, “The SARB lost an opportunity to show some foresight and courage with regards to interest rates. 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.”
BUSINESS REPORT