South African property experts are not happy

 ·31 Jan 2025

The South African Reserve Bank’s (SARB) latest interest rate cut has left the property market wanting more, as homeowners face rising costs like electricity and petrol hikes.

While the 25 basis point reduction, bringing the repo rate down to 7.50% and the prime lending rate to 11%, is a welcome relief, industry experts argue that it falls short of providing substantial relief to struggling homeowners.

The decision was largely expected, driven by declining inflation, which stood at just 3.0% in December, significantly below the SARB’s midpoint target of 4.5%.

However, despite this, economic risks remain, and the small reduction in borrowing costs does little to offset the mounting financial pressures faced by South Africans.

The Monetary Policy Committee (MPC) vote was divided, with four members supporting the cut while two voted to keep rates unchanged.

SARB Governor Lesetja Kganyago noted that inflation should remain below 4.5% for the first half of the year before rising again while also warning that US monetary policy remains uncertain, with the possibility of further rate hikes by the Federal Reserve.

Meanwhile, South Africa’s GDP contracted in the third quarter due to weak agricultural production, though a rebound is expected in the fourth quarter, supported by improved agricultural output and higher spending from two-pot retirement withdrawals.

The SARB projects GDP growth reaching 2.0% by 2027, although sectors like mining and manufacturing remain below pre-pandemic levels.

For homeowners, the impact of the interest rate cut is minimal.

Berry Everitt, CEO of the Chas Everitt International group, points to the latest FNB Property Barometer, which reveals that 23% of current home sales are driven by financial distress.

Additionally, Prudential Authority data indicates that 6% of homeowners are already in arrears with their home loans.

Everitt notes that the rate cut will reduce the minimum monthly bond payment on a R1 million home loan by just R200, from around R10,500 to R10,300—an amount unlikely to significantly ease financial burdens.

CEO of the Chas Everitt International group Berry Everitt.

He warns that homeowners must look beyond short-term relief and prepare for potential future cost increases, including municipal rates and tax hikes, which could negate any benefits from the rate cut.

Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, echoes this sentiment, stating that the government is “giving with one hand and taking with the other.”

She highlights the upcoming 12.7% electricity tariff increase by Eskom, which will substantially raise utility bills for households and businesses alike.

The rising cost of electricity, he argues, far outweighs the small benefit of the interest rate reduction.

Geffen warns that businesses will pass on their increased operating expenses to consumers, further driving inflation.

She also stresses that geopolitical risks, particularly shifting US foreign policies under Donald Trump’s administration, pose additional economic uncertainty for South Africa.

If the government does not address this diplomatic rift, she fears that the economy could suffer serious consequences despite internal efforts to stimulate growth.

CEO of Lew Geffen Sotheby’s International Realty Yael Geffen.

Samuel Seeff, chairman of the Seeff Property Group, believes the SARB should have made a more aggressive move.

He argues that a 50 basis point cut would have had a much greater impact, especially given South Africa’s high real interest rate relative to inflation.

With the economy stagnating and unemployment remaining a major challenge, Seeff contends that the SARB’s focus on inflation containment is outdated.

Instead, he calls for bolder rate cuts to stimulate economic growth and job creation, citing historical precedents where significant rate reductions helped lift the economy during crises such as the COVID-19 pandemic.

Despite these concerns, Seeff acknowledges that lower interest rates have provided some momentum to the property market, with sales volumes improving towards the end of last year.

He advises buyers to take advantage of current conditions, particularly in Gauteng and other inland provinces where property stock remains high.

If economic stability is maintained and growth picks up, he believes the real estate sector will perform better in the coming year.

Overall, while the SARB’s interest rate cut is a step in the right direction, it falls short of providing meaningful relief to South African consumers and businesses.

With electricity tariffs rising, potential fuel price increases on the horizon, and persistent economic challenges, homeowners and property investors must navigate an increasingly complex financial landscape.

The call for stronger policy interventions to drive economic growth and reduce unemployment remains loud, as the current trajectory offers little respite for those struggling to make ends meet.

Chairman of the Seeff Property Group Samuel Seeff.
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