New reality for homebuyers and sellers in South Africa

Property experts say that homebuyers and sellers need to start getting to grips with the reality that higher interest rates are likely to stick around for longer.

This means that each side of a sale will need to make adjustments.

Property experts emphasise the need for buyers to remain cautious and sellers to adopt realistic pricing as the market gradually navigates toward recovery.

The South African Reserve Bank (SARB) has signalled that interest rate reductions will be measured and deliberate. During its latest Monetary Policy Committee (MPC) meeting, the SARB announced a modest 25-basis point cut to the repo rate, reducing it to 7.75%.

Despite inflation dropping to 2.8%, well below the target range of 3% to 6%, the bank’s approach underscores its focus on long-term price stability.

Investec chief economist Annabel Bishop explained that the SARB’s forward-looking inflation-targeting framework prioritises future projections over current data.

The bank aims for an inflation midpoint of 4.5%, with forecasts indicating inflation will remain within manageable ranges, averaging 4% in 2024 and moderating further to 3.2% by year-end.

By Q1 2025, inflation is expected to hover around 3.5%, gradually rising to 4.5% by late 2026.

This cautious approach includes only three anticipated 25-basis point cuts over the next two years, totalling a 75-basis point reduction.

Some economists, like Old Mutual’s Johann Els, argue that the SARB’s cautious stance misses an opportunity to stimulate economic growth.

He advocated for a more significant 50-basis point cut, citing subdued inflation and favourable economic conditions.

Els believes that bolder action could better support South Africa’s struggling economy.

Similarly, Samuel Seeff, chairman of the Seeff Property Group, lamented the missed chance for a larger cut, noting that the lowest inflation since the pandemic presented an ideal moment to energise the market and drive growth.

Despite differing opinions on the rate-cutting strategy, the reality remains clear: interest rates are likely to stay elevated for some time.

This scenario has implications for both homebuyers and sellers. Chris Tyson, CEO of Tyson Properties, advises buyers to plan around peak interest rates rather than current levels.

Budgeting conservatively allows for financial flexibility, enabling buyers to navigate future fluctuations without overextending themselves.

Tyson also recommends prioritising properties with features that can offset rising utility costs, such as solar power and water-saving systems.

Additionally, he urges buyers to carefully consider location, travel distances, and work-from-home facilities, emphasising that property purchases should be medium- to long-term commitments.

The property market’s recovery remains uneven across regions.

While some areas show resilience, markets like Gauteng and KwaZulu-Natal continue to face challenges.

The latest rate cut offers a glimmer of hope, setting the stage for a potentially better 2025.

However, uncertainties persist, including external pressures such as a resurgent US dollar, rising oil prices, and geopolitical tensions.

These factors could influence inflation and household budgets, underscoring the need for cautious decision-making.

For sellers, realistic pricing remains essential. Despite the downward trend in interest rates, the market is still characterised as a buyer’s market.

Samuel Seeff noted that while the rate cut injects energy into the housing sector, more aggressive action is needed to stimulate the broader economy and create jobs.

Until significant economic growth materialises, sellers must align their pricing expectations with current market conditions to attract buyers.

Looking ahead, the SARB’s cautious monetary policy reflects its concern over global and domestic risks.

Potential disruptions in global oil supplies, ongoing conflicts, and agricultural volatility could drive inflation higher, impacting South Africa’s economic landscape.

Domestically, the volatile rand and changing weather patterns pose additional challenges. The MPC has emphasised that its decisions will be data-driven, with no predetermined path for interest rates.

While the current trajectory of modest rate cuts provides some relief, buyers and sellers must adjust to a market shaped by higher-for-longer interest rates.

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