Latest Rate Cut
On Thursday, May 29th, the South African Reserve Bank (SARB) approved a 25-basis point rate reduction, marking another milestone for the residential property sector by lowering the repo and prime lending rates to 7.25% and 10.75%, respectively. This is the fourth rate cut since September 2024.
Rhys Dyer, CEO of the ooba Group, commends the South African Reserve Bank (SARB) for their decision. “The SARB has taken the correct decision to lower rates, which will support consumers and the industry at large, and we have no doubt that this rate cut will make a big impact”.
Key deciding factors
Dyer unpacks a few of the key reasons for the rate cut as follows: “The latest headline consumer price index (CPI) figure for April edged up slightly to 2.8% from 2.7%, but remains below the 3% lower limit of the Reserve Bank’s inflation target range,” he says. “The increase was largely attributed to higher food prices, which were offset by the continued easing of fuel prices, which declined by 13.4% from year-earlier levels (as per StatsSA).”
This is further bolstered by the positive market sentiment following last week’s Budget Speech. “The Budget Speech represented a collective compromise between the parties, signalling a more unified GNU that is committed to working cooperatively,” says Dyer. “One of the key Budget takeaways that will help boost investor confidence in the property sector is the government’s joint commitment to review spending in an effort to stabilise its debt levels.”
What will homeowners be paying now?
As a result of the 25bps rate cut, mortgage repayments will reduce by:
- R750 000 bond – from R7,741 to R7,614 – thus saving R127
- R900 000 bond – from R9,290 to R9,137 – thus saving R153
- R1 000 000 bond – from R10,322 to R10,152 – thus saving R170
- R1 500 000 bond – from R15,483 to R15,228 – thus saving R255
- R2 000 000 bond – from R20,644 to R20,305 – thus saving R339
- R2 500 000 bond – from R25,805 to R25,381 – thus saving R424
- R3 000 000 bond – from R30,966 to R30,457 – thus saving R509
- R5 000 000 bond – from R51,609 to R50,761 – thus saving R848
(Based on a 20-year repayment period at the prime rate)
What does this mean for the property market?
Samuel Seeff, Chairman of Seeff Property Group, says this rate cut will be a boost for affordability and enable more first-time buyers to get into the market. The continued positive mortgage lending environment further adds to the good buying conditions. We are also seeing improved price growth in areas where stock levels are depleting which is good news for sellers too.
Herschel Jawitz, CEO of Jawitz Properties, concurs, “While it is still early to declare a market ‘recovery,’ lower interest rates will positively impact demand, which is ultimately good news for property prices and sellers. Most parts of the country remain a buyer’s market, but stock is tightening, and buyer activity is increasing”.
“This rate cut won’t create an overnight boom, but it’s an important psychological shift,” says Leonard Kondowe, national property finance manager at Rawson Property Group, “Confidence is coming back. People are beginning to plan again, and property is once more part of that conversation.”
Adrian Goslett, regional director and CEO of RE/MAX Southern Africa, encourages both buyers and sellers to act strategically during this more favourable rate window. “For buyers, it may be a good time to explore opportunities while rates are still trending lower. For sellers, improved affordability could mean a larger pool of potential buyers, which could mean a quicker sale and more competitive offers,” says Goslett.
Denese Zaslansky, CEO of the FIRZT Realty group, shares, “There is no time to waste for prospective buyers and investors. At the current average home price of around R1,6m, for example, the gross monthly income required to qualify for a home loan is around R54,200, which is R3,600 less than it was at this time last year.
“But if prices rise by just 5% over the next 12 months, buyers will not only have to face a bigger monthly bond repayment, but will also need to earn about R2 700 more a month to qualify for their home loan – even if the interest rate stays the same. They will thus lose most of the advantage of the recent rate decreases.”
The banks are playing ball
Berry Everitt, CEO of the Chas Everitt International property group, believes, “The banks have been easing deposit requirements in recent months and the average deposit for first-time buyers is currently almost 9% lower, at R175 000, than it was at this time last year. Coming on top of the Budget decisions to raise the Transfer Duty threshold to R1,2m and not to raise VAT, this means that first-time buyers now require a lot less cash to become homeowners.”
Everitt says this is already being reflected in the market, with BetterBond recording a 2,2% year-on-year increase in home loan applications in April, “which represents a huge comeback from the 15% year-on-year decline recorded in April 2024”.
Can we expect another rate cut in 2025?
Tyson Properties director, Francois du Toit, says that although inflation remain below the mid-point of the target range at present, the fuel levy hike announced in the budget last week will filter into all essential goods and household expenses and could once again push up inflation. He expects ongoing economic headwinds which are likely to reign in interest rate cuts for the time being.
CEO, Chris Tyson adds: “Our inflation rate is quite low at the moment. I think, given the ongoing uncertainties in the market, the Reserve Bank will wait at least another six months just to see where things are going.”
At best, Tyson foresees the possibility of a 0.25% or 0.5% decrease towards the end of this year.
Dr Andrew Golding, CE of Pam Golding Properties concurs, “The Bureau for Economic Research (BER) notes that it is a matter of time before the Reserve Bank introduces a lower inflation target, which will also discourage further interest rate cuts as the Bank attempts to anchor inflation expectations around the new, lower inflation target.
Given that further rate relief was placed on hold earlier this year due to global developments, the Reserve Bank may now decide to pause to introduce the lower inflation target, which most agree will help further reduce the inflation rate and thus ultimately create scope for additional rate cuts in the future”.