January 25 2024
With headline inflation easing to 5.1% in December 2023, down from 5.5% in November and a high of 7.1% in March 2023, as anticipated, the Monetary Policy Committee (MPC) left the repo rate unchanged at 8.25% for the fourth consecutive meeting
While the decision by the Reserve Bank to retain the repo rate unchanged at 8.25% (11.75% prime rate) is welcomed, Samuel Seeff, chairman of the Seeff Property Group, said on Thursday that this was “a missed opportunity to boost the economy and property market’.
Given that inflation has dipped to the lowest level in months, Seeff said there was an opportunity for the Bank to consider a 25bps rate cut.
“At the very least, we would like to see that the Bank starts cutting as soon as the March meeting, rather than later in the year,” he said.
High interest rates have affected first-time home buyers in terms of higher finance costs.
House price growth has largely stalled with investors consequently seeing little incentive in the property market right now, according to Seeff.
“A strong property market is the foundation of a strong economy, and the country simply can no longer afford to drift along without serious economic intervention,” Samuel Seeff said.
The upside to the market is that conditions are favourable for buyers, despite the higher interest rate. The flat price growth means they can largely buy at similar price levels to last year, and there is plenty of stock to choose from.
Mortgage lending also remains positive with deposit requirements still below 10% while qualifying buyers are able to secure a rate concession as the banks compete for the limited pool of mortgage business.
Lower inflation and interest rate cuts are inevitably positive for consumer confidence, a crucial ingredient for renewed buoyancy in the housing market, said Dr Andrew Golding, CEO of Pam Golding Properties.
“Notably, according to FNB statistics, financial pressure accounted for 25% of all residential property sales in the fourth quarter of 2023, exceeding the historical average of 18% and now the most important reason cited by sellers. Reduced interest rates would help boost economic confidence and encourage increased housing market activity, with the likelihood of a new cycle of real house price growth,” he said.
While there is little disagreement over the fact that interest rates have peaked and are ultimately headed lower this year, there is less certainty as to both the timing and extent of those cuts, according to Dr Golding
SA was unlikely to start reducing the repo rate until the US Federal RT\eserve makes the first move. Initial optimism that the Fed could start cutting interest rates in March has faded with the first reduction expected in the second quarter, or later.
However, according to market analysts, it appears likely that the Reserve Bank will cut by a total of 75 basis points during the second half of the year, with further cuts possible in 2025, Dr Golding said.
According to the Pam Golding Residential Property Index, national house price inflation stabilised at +2.7% in Q4 2023. Unsurprisingly, due to the strong demand for homes in the lower price band, house price inflation in the category below R1m continued to accelerate in Q4 2023, averaging +7.1%.
“Cape Town continued to outperform relative to other major metro housing markets during the period from January to September 2023, with house price growth of 3.46%, followed by Nelson Mandela Bay at 1.51%, Tshwane 1.41%, Ekurhuleni 1.37%, eThekwini 1.05% and Johannesburg -0.68%,” Pam Golding Properties’ research showed.
alistair@propertyflash.co.za
