How the unchanged repo rate affects property owners, buyers and sellers

How the unchanged repo rate affects property owners, buyers and sellers

The South African Reserve Bank's (SARB) Monetary Policy Committee recently decided to keep the repurchase rate steady at 8.25% per annum, which means the prime lending rate remains at 11.75%. This decision has significant implications for property owners, buyers, and sellers in the country.

Market Reactions and Economic Outlook

Greg Dart, Director at High Street Auctions, noted that the unchanged repo rate was expected, especially since the US Federal Reserve has not indicated any rate cuts. However, there is optimism in the air as post-election investor sentiment appears bullish, suggesting a positive mid-term economic outlook for South Africa.

There was minimal chance of the SARB lowering the repo rate without a similar move from the US central bank. Dart explained that economists predict this change might happen in September. If Reuters' panel of economists is correct, we could see two rate cuts of 25 basis points each before the end of the year, bringing the rate down to 7.75%. This would provide substantial relief to consumers.

Dart also highlighted the current boom in the property market post-elections. Investors who were hesitant in the first quarter are now eager to capitalize on market opportunities before prices start rising due to increased demand. With potential rate cuts and a positive economic outlook, now is an ideal time to buy.

Perspectives from the Industry

Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, expressed disappointment over the unchanged repo rate but acknowledged the realism of the decision given the Consumer Price Index (CPI) is still above the SARB's target range.

Geffen pointed out that the property market is reacting positively to the GNU, especially in Gauteng. There's a growing demand for properties around the R2 million mark, particularly in Randburg. Many buyers were waiting for the election results and are now entering the market eagerly.

The Importance of Timing

Geffen emphasized the importance of timing for buyers. The market is poised for a dramatic turn before the end of the year. With anticipated interest rate cuts, buyers should act quickly to secure properties at current prices. Prices are expected to rise, so now is the time to buy.

Consumer Challenges and Market Positivity

Seeff highlighted the challenges faced by consumers and homeowners due to the high-interest rates and living costs. Middle-class homeowners are paying significantly more on their home loans, and the burden on consumers and the economy is substantial. The higher inflation is not due to economic overexuberance but has stalled the economy and increased costs for consumers.

Seeff pointed out that the property market has seen value erosion and slow price growth. The interest rate has been unchanged for over a year, higher than post-2007/8 Global Financial Crisis levels. This has resulted in significant value erosion in the property market, down about 25%, with price growth below 1%.

However, Seeff remains optimistic about the future. The market is hopeful for an interest rate cut soon. This is good news for buyers who can take advantage of flat prices now and benefit from savings once the rate drops. The slower market means less competition, allowing buyers to secure good deals.

The Need for Economic Growth

A growing economy and property market are vital. There's a lot of positivity about the GNU, and better times are ahead. Reflecting on how the economy grew when interest rates were about 2% lower gives hope for future growth.