Impact of an interest rate cut on the property sector

Impact of an interest rate cut on the property sector

By Ishani Chetty 

The Monetary Policy Commitee of the South African Reserve Bank (SARB) announced that the interest rate will be cut by 25 basis points to 6.50%, compared to the previous 6.75%. According to reports, this benchmark interest rate was previously cut in March 2018.

The interest rate cut will bring much needed relief for South Africans facing debt and for potential home buyers seeking home loans.

Effects of the interest rate drop

CEO of Greeff Christie’s International Real Estate, Mike Greeff commented on the annoucement and the impact it will have on property consumer’s mindset.

“The drop will have an immediate easing effect on consumer budgets and will make more disposable income available as a cash injection into the economy. This rate cut should also encourage business owners, whether big or small to continue this growth trend through job creation and employing more people.The decision will no doubt encourage more people who had been adopting a “wait and see” mentality to become buyers,” he said.

For many South Africans this is the much needed relief as it has been over a year since car or bond repayments have dropped. With an increasing cost of living, locals are feeling the pinch and the drop in rental prices showcase the impact of the economy on the property market.

The repo rate cut will allow for South Africans to apply for loans at a more affordable rate.Although the news has been welcomed, Seeff Property Group believes that the cut could have been bolder, explaining that the SARB “should have been bolder and opted for a 50bps cut.”

Seeff Property Group adds that although it is not the economic shake-up that this may be the ideal time for potential buyers in the property market.

“Sentiment remains worryingly low and Seeff says the market needed a much stronger message. Consumers are struggling and it has been a tough year with rising costs and a weak economic and growth climate. We need real reprieve of some of the economic pressure faced by consumers to free up more disposable income and entice them back into the property market in numbers.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,” said Seeff Properties in a statement

There are mixed feelings about the drop as CEO of Jawitz properties, Hershel Jawitz provides comment on the repo rate drop and its impact on the residential market.

“The recovery in the residential market is going to be gradual, especially in the sectional title market where there is still a significant amount of new properties coming onto the market, but Jawitz believes that buyers have an outstanding window of opportunity to get into the market that may be close to bottoming out. For now, the market remains very much a buyer’s market but timing any market is always difficult and this residential market is no different,” said Jawitz

Interest rate cut impact on the property sector: 

-Home loans with a lower interest rate may see a trend of potential buyers increasing.

-With a lower interest rate, the prices for property on the market may increase. Providing a positive return for those wishing to sell their homes.

-A lower interest rate will concurrently result in more South Africans spending money, placing it back into the economy.

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