Repo rate unchanged at 8,5%: Good news for consumers and property owners.

Breaking News! The SARB's Monetary Policy Committee decided to keep the repurchase rate at its current level of 8.25% per year.

Lower inflation a positive indicator for potential interest rate cuts, says Dr Andrew Golding, chief executive of the Pam Golding Property group

With headline inflation easing to 5.1% in December 2023, down from 5.5% in November and a high of 7.1% in March 2023, as anticipated, the Monetary Policy Committee (MPC) left the repo rate unchanged at 8.25% for the fourth consecutive meeting.

While the stability of the repo rate is positive news for the housing market, the current higher debt costs as a result of the prevailing interest rates, means that consumers - including home buyers and existing mortgage holders - and businesses remain under pressure amid a tepid economy, with ongoing loadshedding and increased electricity and other municipal tariffs weighing heavily on all sectors.

Lower inflation and interest rate cuts are inevitably positive for consumer confidence, a crucial ingredient for renewed buoyancy in the housing market.

Notably, according to FNB statistics, financial pressure accounted for 25% of all residential property sales in Q4 2023, exceeding the historical average of 18% and now the most important reason cited by sellers. Reduced interest rates would help boost economic confidence and encourage increased housing market activity, with the likelihood of a new cycle of real house price growth.

While there is little disagreement over the fact that interest rates have peaked and are ultimately headed lower this year, there is less certainty as to both the timing and extent of those cuts.

As the Governor of the Reserve Bank has clearly stated his intention to cement inflation expectations around the mid-point (4.5%) before taking his foot off the brake, local market expectations seem to be shifting to the first cut in rates materialising during the second half of the year.

SA is unlikely to start reducing the repo rate until the Fed makes the first move. Initial optimism that the Fed could start cutting interest rates in March has faded with the first reduction expected in the second quarter - or later.

However, according to market analysts, it appears likely that the Reserve Bank will cut by a total of 75 basis points during the second half of the year, with further cuts possible in 2025.

According to the Pam Golding Residential Property Index, national house price inflation stabilised at +2.7% in Q4 2023. Unsurprisingly, due to the strong demand for homes in the lower price band, house price inflation in the category below R1 million continued to accelerate in Q4 2023, averaging +7.1%.

Cape Town continued to outperform relative to other major metro housing markets during the period from January to September 2023 (latest data), with house price growth of 3.46%, followed by Nelson Mandela Bay at 1.51%, Tshwane 1.41%, Ekurhuleni 1.37%, eThekwini 1.05% and Johannesburg -0.68%.

Pam Golding Properties is also experiencing increased activity and enquiries in the high-end luxury market from R25 million upwards, in prime, sought-after locations particularly in Cape Town, Johannesburg's northern suburbs, and Garden Route areas such as Plettenberg Bay and Knysna.

Interest rates hold steady for now

While a cut would have created more welcomed relief, Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that this announcement will at least avoid placing further strain on debt holders.

"Many, including a host of first-time buyers, bought when interest rates were at their lowest back in 2020 and have had a harsh introduction to what homeownership is like. Thankfully, it seems we are entering into a period of a bit more stability now, with this being the second announcement where interest rates have held steady," says Goslett.  

Many economists predict that we will see an interest rate cut within the first half of the year. "While it is not expected that this cut will be a large one - possibly only 0.25% -  it will have a positive impact on homeowners debt repayments and buyers affordability concerns," he notes.

Goslett also hopes that this will be the start of more stability to come. "It is likely that we are nearing the end of the interest rate hiking cycle and are beginning to see the light at the end of the tunnel."

Sharing his final thoughts on the matter, Goslett says that although the high interest rates have not brought the property market to a standstill, it has hamstrung growth and throttled activity for quite some time now. "I am looking forward to seeing how much growth we will see within this sector once interest rates become less of a concern," says Goslett.

Stable repo welcomed, but rate cuts needed boost economy and property

While the decision by the Reserve Bank to retain the repo rate unchanged at 8.25% (11.75% prime rate) is welcomed, Samuel Seeff, chairman of the Seeff Property Group, says it is a missed opportunity to boost the economy and property market.

Given that inflation has dipped to the lowest level in months, Seeff says there was an opportunity for the Bank to consider a 25bps rate cut. At the very least, we would like to see that the Bank starts cutting as soon as the March meeting, rather than later in the year.

Seeff again reiterates that the Bank has been too hawkish and that keeping the rate high for so long has hampered both the economy and property market. This has basically resulted in all of the positive gains of the 2022-year evaporating.

The higher rate has been especially impactful on first-time home buyers and the lower price bands while an increasing number of homeowners are now looking to sell for financial reasons.

Most notably, Seeff says capital appreciation has largely stalled with investors consequently seeing little incentive in the property market right now. A strong property market is the foundation of a strong economy, and the country simply can no longer afford to drift along without serious economic intervention.

After the buoyancy of the 2022-year, buyers and investors are becoming weary at the lack of will and sense of urgency by government to resolve underlying issues vital to reigniting the economy and property market. Primary, is ending the Eskom loadshedding crisis and infrastructure maintenance and development, vital to economic and property market growth.

The upside to the market is that conditions are favourable for buyers, despite the higher interest rate. The flat price growth means they can largely buy at similar price levels to last year, and there is plenty of stock to choose from.

Mortgage lending also remains positive with deposit requirements still below 10% while qualifying buyers are able to secure a rate concession as the banks compete for the limited pool of mortgage business.

Fewer buyers in the market means there is less competition, giving buyers more power to negotiate strongly, says Seeff. The downside for sellers is that the days of high prices are gone for now as buyers are not prepared to pay higher prices in this market. It is best to heed the counsel of real estate agents and price realistically, or risk losing out on a sale.

While the sales market has been slightly down, the rental market picked up considerable steam last year, boosted by various factors including many potential buyers who decided to rent for the time being. Landlords also enjoyed some positive rental growth for the first time in three years and we expect the market to remain positive this year.

Tyson Properties founder and CEO, Chris Tyson, says although the repo rate remains at a 14-year-high dating back to May 2023, Tyson is optimistic that this signals a period of greater stability for South Africa's property market which is good news for both buyers and sellers. On an even more positive note, he expects the repo rate to begin to drop during the second half of 2024.

This will balance out further turbulence that is expected during 2024, especially in the lead up to the State of the National Address and the Budget Speech in February which could herald increases in personal tax as well as property taxes.

"The economic fundamentals associated with subdued economic growth, high inflation and high unemployment remain daily realities. Even though the inflation rate has dipped, the possibility of fuel price hikes persists as do other increases which may impact on households' disposable incomes. As a result, we only expect the interest rate to begin to drop after the middle of 2024," he says.

The unchanged rate is a  relief for resilient South Africans, Tyson believes. He says greater optimism in the market manifested towards the end of 2023 with the number of enquiries received by Tyson Properties in its key markets increasing together with the number of first-time buyers. Renewed positivity in the Johannesburg market  is evident and KwaZulu-Natal is also doing well. The Cape Town market, which has been on an ongoing upward trajectory, remains buoyant.

Good things in store for property in 2024

2023 was a challenging year on many fronts, with fallout from unusually high levels of global political and economic turmoil affecting markets around the world. 

In South Africa, this manifested as steep - and difficult to control - inflation, resulting in a rapid series of interest rate increases between November 2021 and May 2023. For the average consumer, this put severe pressure on already-constrained household finances, leaving little room - or incentive - to invest in long term assets like property. 

As a result, the property market experienced a relatively slow year with standard performance across many key metrics. However, all signs currently point towards a very different experience in 2024.

"One of the most promising shifts to happen at the end of 2023 was the stabilisation of inflation, both locally and globally," says Tony Clarke, MD of the Rawson Property Group. "This eases pressure on the Reserve Bank to keep raising interest rates as an inflation control measure. As long as these conditions persist - which they should if global conflicts and local challenges like loadshedding don't escalate - we can expect interest rates to remain stable with a slow decline from around mid-2024."

Escalating interest rates were largely to blame for the minimal property demand experienced in 2023. As fear of continued escalations decreases, however, Clarke says buyer confidence will return, bringing a surge of pent-up demand to the 2024 property market.

"First time buyers are particularly interest-rate-sensitive, which is a big part of why we saw such a drop-off in first-time purchases over the last year," says Clarke. "Now that rates are stabilising, we expect to see a lot of those first-timers, who were hesitant before, making the jump to take advantage of the excellent value that is currently available on the property market."

That excellent value - a side-effect of sluggish house price growth due to an extended period of low demand - is also attracting more international investors. This, Clarke says, will boost demand in the luxury and super-luxury markets, which are less affected by interest rates, but more affected by local and global politics and financial conditions.

"Being an election year, we do expect to see some property market fluctuations in the lead up to, and aftermath of, the provincial and national vote," says Clarke. "There could well be a temporary slump in market activity, particularly in the luxury residential and commercial market segments, as high value investors wait to see the election outcomes."

Should the elections go smoothly and ideally result in positive changes for the country, Clarke says the market will respond very positively.

"A good election experience with positive media coverage can be a powerful boost to consumer and investor confidence," he says. "If everything goes well, we should see positive effects on the strength of the rand, renewed interest from foreign and local investors, and a more stable economy in general."

Clarke believes the elections could also affect semigration trends that are currently boosting demand in coastal regions, particularly in the Western Cape. 

"We've already noticed a slight uptick in market activity in Gauteng," he says. "Positive election results in that province could certainly convince more buyers to stay. It'll be interesting to see what happens to semigration patterns post-election, and how that influences local and national property trends."

One thing, at least, is certain. The favourable property prices currently available will not last forever.

"As demand picks up, so too will house price growth," says Clarke. "It's not going to happen overnight - there's still time to capitalise on the good value on offer - but if you sit on the fence for too long, you're going to miss out on some great real estate opportunities."

It is always wise to remember that property is a long game and short term influences seldom dictate the long term value growth.

"Consumers need a break. There's no give in household budgets; the bulk of which is going towards servicing debt.

"The latest repo announcement is like the CPI figures that came out this week. We're grateful that it's unchanged, but it's at a 14-year record high and has been since early last year. And while December's CPI dropped to 5.1% it still leaves us with an annual average of 6%, which is at the very top end of the Reserve Bank's targeting range.

"We keep setting the bar lower and lower. Being grateful that the repo rate has stayed at a painful high or that CPI didn't top 6% for the year is the economic equivalent of getting beaten up in a mugging and afterwards being chipper because you're not dead, rather than outraged that you were mugged in the first place.

"In real terms, salaries have dropped in value by nearly 7% compared to pre-pandemic household income in 2019, so if you ask SA's over-burdened consumers what a December CPI of 5.1% or an unchanged repo rate means to them, the likely answer will be 'nothing'.

"Their reality is that households are drowning in bond repayments, dread going through a supermarket checkout and consider a fuel card swipe to be reasonable grounds for a panic attack."

Geffen says until the interest rate drops, it's going to be tough for first-time buyers to get onto the property ladder and the market overall will be muted.

"Home owners only have one choice right now, which is to save where they can and pump any excess cash into servicing the primary debt on their bonds.

"Hopefully we'll see interest rates come down towards the middle of the year, which will reignite the industry and put it back on an upward trajectory."

"The inflation needle needs to dip far more significantly before any actual impact will be felt. December's lower CPI of 5.1% was welcome, but not enough.

"It still left the country with an average CPI of 6% for the year, at the top end of the Reserve Bank's targeted range for inflation, which is 3% to 6%. A sustained lower inflationary curve is what the MPC is wanting to see - around the mid-point of 4.5%."

Dart says while the latest rate announcement was predictable, it isn't good news for investor confidence or reigniting the economy.

"Kganyago pointed out that the ports, Transnet and Eskom seriously constrained the economy last year, contributed to weak output growth and higher costs.

"These are all State-Owned Enterprises and until the government gets its own house in order, South Africa's growth potential will be severely limited.

"We saw how badly this affected the property sector last year with the number of year-on-year transactions plummeting by around 100 000, and this is unlikely to rise significantly until CPI and interest rates come down."