Experts react to SARB's 0.25% interest rate cut and its impact

In a significant move today, the South African Reserve Bank has lowered the interest rate by 0.25 percentage points. This decision is expected to have a significant impact on consumers, businesses, and the overall economy. Experts are already sharing their insights on what this rate cut means for South Africans.

"...not enough to make any real difference to consumers"

Harcourts CEO, Richard Gray's says: "Although I welcome the interest rate cut, I believe that the Governor has missed a great opportunity to offer South Africans the chance to get their heads above water. A cut of 0.25%, whilst a step in the right direction, is not enough to make any real difference to consumers.

"This was a chance on the back of relative political stability, a stronger Rand and positive economic sentiment to make a bold statement and make a bigger cut that would give some tangible relief. This will not provide any significant impetus to the property market which has been very slow for the past 2 years. In the absence of a bigger cut, I would urge the Governor to follow this small cut with a set of stronger rate reductions that send the right signals to potential home buyers and existing home loan owners that real relief is on the way," he says. 

Relief at last!

"While inflation and the economic challenges that contributed to the high interest rate are still a concern, the SARB's decision marks a turning point for the economy," says David Jacobs, Regional Sales Manager for the Rawson Property Group. "This cut is a sign that we are finally moving in the right direction. And the timing - right before the busy summer season- is perfect to stimulate renewed interest in the property market."

A welcome respite for homeowners

The most immediate impact of the rates cut will be felt by existing homeowners, for whom the cost of servicing home loans will decline - albeit only slightly. "Most home loans in South Africa are prime linked," says Leonard Kondowe, National Manager for Rawson Finance. "That means the majority of bondholders will enjoy a 0.25% drop in their monthly repayments. That's not a huge amount, but it will allow them to breathe a little easier after a prolonged period of financial strain."

While it may be tempting to simply enjoy the extra cashflow, Kondowe advises homeowners to use this opportunity wisely. "I strongly recommend continuing to pay the higher amounts from previous months," he says. "This will help reduce the overall interest paid on the bond and create a financial buffer that can be accessed in emergencies."

A boost for first-time buyers

One of the most exciting outcomes of the interest rate cut is the positive impact it will have on first-time buyers. Lower interest rates make home loans more affordable, which could enable more people to qualify for financing and make the leap into homeownership. 

"Affordability has been a major barrier for buyers over the past few years, but this rate cut will help change that," says Jacobs. "It's likely to trigger increased activity, especially in the lower to middle price brackets, where demand has been strong but constrained by high borrowing costs. If rates continue to decline in future, which we expect they will, this trend will only gain momentum."

Today's announcement is significant, because it marks the first sign that South Africa's economy is turning. 

High Street Auctions Director Greg Dart says SA Reserve Bank Governor Lesetja Kganyago's announcement of a 25 basis-point rate cut will be an instant boost for South Africa's property market, and boost investor confidence even further.

"It would have been great if the MPC had followed the US Fed and cut its key lending rate by half a percentage point. Like us, US consumers haven't seen a prime lending rate cut since the pandemic, and 50 basis points will sharply lower borrowing costs.

Rates cut calls for a good property strategy

Chris Tyson, CEO of national real estate agency, Tyson Properties has welcomed today's decision by the SARB.

He is optimistic that this signals the beginning of a rates cut cycle with another due by year end but encourages property owners to continue to invest wisely going forward. The meaningful change comes if homeowners continue to repay their home loans at the pre-interest rate cut amount against a reduced monthly repayment. The period of the bond will reduce by approximately 2,5 years on a R1 million bond.

Going forward, Tyson expects a few more cuts with rates ultimately coming down by about 2% between now and the end of next year.

"That is what the country needs. All the indicators are there for a good run, property wise, for the next 18 months," he says.

Over the long-term and should the interest rate decline continue, Tyson envisages that the residential property market will move from a buyer's market to a normal market within two years. He adds that the interest rate drop comes at a very good time - the beginning of spring when the market that is largely dormant during winter naturally reignites. This should boost the 2024 summer selling season.

Welcome news after a sustained period of high interest rates.

Herschel Jawitz, CEO - Jawitz Properties says the impact of the drop in rates will be marginal in terms of a reduction in monthly home loan repayments amounting to approximately R172 per month for a R1 million home loan and R345 per month for a R2 million-rand home loan.

"What is important is that the rate cutting cycle has started. Added to this is the more than R3 per litre that petrol prices have come down by with another significant drop expected in October and the slowing of food inflation. Together, these will start to have a positive impact on disposable income and consumer confidence. We have already started to see more positivity and buyer activity in the residential market in anticipation of the interest rate cut. This trend is expected to continue," he says. 

How rate cuts benefit everyone in real estate

The whole real estate industry is celebrating following this week's Reserve Bank announcement of a 0,25 percentage point cut in interest rates. 

"Most economists are agreed that it also signals the start of a rate cutting cycle that will last well into next year and may well see the prime rate fall to below 10% - barring any unforeseen global or local disasters that cause a sudden increase in inflation," says Stephen Whitcombe, MD of the Firzt Realty group.

"As it is, the annual inflation rate has been declining since the start of this year and dropped to 4,4% in August, down from 4,6%. This puts it below the midpoint of the Reserve Bank's preferred 3% to 6% range and, given the current strength of the Rand, it is expected to decline even further and create space for further rate cuts." 

At last! Rate cut brings welcome relief, time to buy property, says Seeff

Time to buy property, says Samuel Seeff, chairman of the Seeff Property Group.

"We would have liked to have seen a 50bps cut, but we are happy to take 25bps, and hope this is the first of more rate cuts to follow, he says further. Especially, given that the US Fed cut its rate by 50bps and plans two further rate cuts of 25bps each. This follows recent cuts by the Bank of England, and two cuts by the European Central Bank.

The rate cut has been hotly anticipated by the property market given the improved economic indicators. We heard this week that the CPI has declined further to 4.4% which is now within the bank's target range. The Rand has continued to strengthen and dipped below R17.50 to the US dollar this morning, from a high of R19.2 in late April. The falling oil price and pending petrol price cut should bring further relief to consumers.

Seeff says the scene is set for the economy and property market to grow, but both need more interest rate relief. We are seeing the positive effects of the Government of National Unity (GNU) starting to bear fruit. The energy grid has also now been stable for close to six months which is a huge boost for the economy.

As a result of the 25bps rate cut, mortgage repayments will reduce as follows:

With the 25 basis point interest rate drop, understanding its impact on your finances is essential for effective planning.

To assist, Property24 has introduced an Additional Once-Off Payment feature in the additional payments calculator tool, allowing you to understand how the rate cut can benefit your financial circumstances.

To access this feature, simply navigate to the Property24 Additional Payments Calculator under the Calculators tab.

Click here to access the Additional Once-Off Payment feature.  

 A significant moment for housing market as interest rates drop

Dr. Andrew Golding, chief executive of the Pam Golding Property group says local consumer confidence, which has rebounded to a five-year high in Q3 2024 - the third consecutive quarter of improvement and the highest reading since mid-2019 - has received another significant boost with the Monetary Policy Committee's announcement.

Since the latter part of 2023 there has been a marked improvement in consumer confidence according to the FNB/BER Consumer Confidence Survey. During the past six months alone, consumer confidence has surged by 10 points, signalling a significant recovery in consumers' willingness and ability to spend due to a more positive outlook. This is a major positive for the housing market, particularly in spring when residential market activity conventially begins picking up again.

Hopefully this is the start of the long-awaited interest rate cutting cycle, and with things moving both globally and locally in a more favourable direction, it provides scope for further rate cuts and significant relief for households and therefore a more supportive environment for a recovery in the housing market during the next 12-18 months.

The 25 basis-point cut is the best news

Lew Geffen Sotheby's International Realty CEO Yael Geffen says the 25 basis-point cut is the best news that South Africa's highly debt-burdened consumers have had in four years.

"Until the announcement today, South Africa's real rates had reached the highest level in 19 years, and consumers hadn't seen a rate cut in four years. "This benchmark rate cut to 8% is a small step in monetary terms, but a massive one in terms of positive business and consumer sentiment.

"It marks a significant turnaround for South Africa's economic outlook, off the back of the strengthening rand (trading at R17.43 to the US$ at the time of the MPC's announcement) and six months of downward trending inflation that reached 4.4% in August; falling below the SA Reserve Bank's 4.5% target for the first time since April 2021."

Geffen says consumers will feel the difference immediately.

All the lights are green now for real estate

Berry Everitt, CEO of the Chas Everitt International property group says South Africa's economic recovery is rapidly gaining momentum - and the real estate sector is poised to follow suit in the wake of this week's 25 basis point interest rate reduction by the Reserve Bank, which heralds a cutting cycle expected to last through next year and will make home ownership more affordable.  

"Meanwhile the Bureau for Economic Research anticipates that the economy will grow by 2,2% next year thanks to the new unity government's commitment to implementing key economic reforms and mobilising billions of rands worth of investment to fix the country's infrastructure and logistics problems.

"This forecast is ahead of the Reserve Bank's 1,5% growth estimate and the 1,2% forecast by the International Monetary Fund, and would be the highest for rate of growth in many years, but a sharp rise in business and investor confidence since the establishment of a Government of National Unity (GNU) in June suggests that it is quite possible," he says. 

The increase in confidence, he says, is most evident in the strengthening of the Rand from almost R19 to the US dollar last year to a projected R17,60 to the dollar by the end of 2024, and in the current investor scramble for SA government bonds, which has resulted in at least R50bn worth of inflows this year. SA equities have also rebounded to record highs in the past three months.  

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