The Monetary Policy Committee (MPC) announced today that interest rates will be lowered by 25 basis points. The prime lending rate therefore changes to 10%, and the repo rate drops to 6.5%.
“An interest rate cut generally results in an increase in the amount of home loans granted as consumers are more willing to take on debt while interest rates are low,” Goslett explains.
“With a 3.2% decline in our GDP for the first quarter of 2019 and with inflation being contained within the mid-point of the MPC’s target range, there really could not have been a more opportune time for the MPC to stimulate our economy and provide some much-needed economic relief by announcing a cut in interest rates at this meeting. We therefore commend the MPC for lowering interest rates at this time,” says Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.
Goslett goes on to say that this announcement is an encouraging one for the housing market. “An interest rate cut generally results in an increase in the amount of home loans granted as consumers are more willing to take on debt while interest rates are low,” Goslett explains.
“Although it is only a quarter of a percent, any financial breaks in the current economic climate is a step in the right direction,” says Richard Gray, Harcourts Africa Chief Executive Officer.
“The people have been carrying the burden of an ailing economy and ever-rising costs for quite some time now, and in order for us to turn this economy around and institute sustainable growth, economic participation has to increase.”
“The 25 basis point cut, which equates to a reduction of about R164 per month per R1 million of mortgage debt, is not going to have a significant impact on current repayments or affordability. However, with a petrol price cut last month and now a rate cut, however small, consumers may start to feel a little better about their future financial well-being, which is critical from a consumer confidence point of view,” says Herschel Jawitz, CEO of Jawitz Properties.
Jawitz says the current residential market offers buyers opportunities not seen since the market crash 11 years ago. “In real terms, property prices have not kept up with inflation over the last few years and, in nominal terms, in certain parts of the country, prices are falling. Even the Western Cape market, including the Atlantic Seaboard, is seeing a softening of prices. The reality for some sellers who have bought their property in the last five years is that they may not get their purchase price back. To get into the market at these price levels, buyers have a real opportunity to create long-term value.” However, he cautions long term means at least five to seven years as a minimum.
While welcoming the rate cut, Samuel Seeff, chairman of the Seeff Property Group, says the bank should have been bolder and opted for a 50 basis points cut.
“At a time when the economy and property market are really struggling, we needed courage. A bolder rate cut is already factored into the currency, and the Reserve Bank should have done more to inject impetus to support President Ramaphosa’s reforms to get the economy and confidence back on an upward trajectory,” he says.
Seeff says sentiment remains worryingly low, and the market needed a much stronger message.
“Thus far, we have not seen any real sign of the economic improvement or uptick in property sales that was expected following the elections, despite the phenomenal buying conditions. There is now a huge opportunity for buyers. Stock levels are up considerably. Prices are flat and coming down in many instances, while sellers are negotiating and the banks prepared to give loans. This is the time to buy,” he says.
“The market seems to be in a similar phase to the 1992 to 1993 period, just before the 1994 elections when there was a great deal of hesitation. Right now though, the interest rate is considerably lower. Those who bought during that 1992/3 lull will tell you that they bought at just the right time and have benefited greatly from capital value growth.”
Dr Andrew Golding, chief executive of the Pam Golding Property group, says the rate cut, coupled with early indicators of recovery in the South African residential property market, augur well for the balance of the year, and underscore the opportunity for home buyers to capitalise on the current favourable market conditions before the market enters a decisive upturn.
“It is signalling that the time is ripe for early adopters to capitalise on the current opportunities presented to get into the market – particularly first-time buyers, as home loan lending remains competitive in the current market, which still favours buyers.”
Mike Greeff, CEO of Greeff Christie’s International Real Estate, says the rate cut should also encourage business owners, whether big or small, to continue this growth trend through job creation and employing more people.
“Prospective buyers will also be more likely to obtain funding from lending institutions as the government looks to jumpstart the economy. This is not a bad strategy at all, as it sends a very positive and proactive message to foreign investors and governments that South Africa is filled with potential and ripe with investment possibilities. The decision will no doubt encourage more people who had been adopting a ‘wait-and-see’ mentality to become buyers,” he says.
“The decision follows a powerful State of the Nation address by President Cyril Ramaphosa in which he encouraged all South Africans to dream big and do the impossible. This decision could be the first bit of encouragement given to the citizens of South Africa by the government.”