Last Thursday, the South African residential property sector received a much-anticipated jolt of optimism as the South African Reserve Bank (SARB) approved its fourth 25-basis point rate reduction since September 2024. With the repo rate now at 7.25% and prime at 10.75%, the immediate sentiment is overwhelmingly positive. Yet, as the dust settles, a critical examination reveals a nuanced landscape where cautious optimism remains the prevailing wisdom.
A Welcome Reprieve (and the "Why")
Rhys Dyer, CEO of the ooba Group, lauded SARB's decision, emphasizing its vital support for consumers and the industry. This move, he notes, is underpinned by a surprisingly low headline consumer price index (CPI) figure for April, holding steady at 2.8% – notably below the Reserve Bank’s 3% lower limit. While food prices contributed to a slight uptick, this was effectively offset by the continued easing of fuel prices, which saw a significant 13.4% decline year-on-year, according to StatsSA. Furthermore, the positive market sentiment following last week’s Budget Speech, which represented a collective compromise between parties and signalled a more unified GNU committed to debt stabilization, further bolstered the environment for this rate adjustment.
Breathing Room for Homeowners
For existing and prospective homeowners, the immediate impact is tangible and unequivocally positive. A 25bps reduction translates to noticeable monthly savings on bond repayments over a 20-year repayment period at prime rate. For instance:
- R750 000 bond: Saving R127 (from R7,741 to R7,614)
- R1 500 000 bond: Saving R255 (from R15,483 to R15,228)
- R3 000 000 bond: Saving R509 (from R30,966 to R30,457)
- R5 000 000 bond: Saving R848 (from R51,609 to R50,761)
These reductions, while not astronomical, offer a welcome reprieve in challenging economic times, easing the burden on household budgets.
A Nuanced Boost for the Property Market
Industry stalwarts largely echo the positive sentiment. Samuel Seeff, Chairman of Seeff Property Group, foresees an immediate boost for affordability, enabling more first-time buyers to enter the market. He also anticipates improved price growth in areas where stock levels are depleting, which is good news for sellers. Herschel Jawitz, CEO of Jawitz Properties, concurs, acknowledging the positive impact on demand but cautiously refraining from declaring a full market 'recovery,' asserting that many parts of the country remain a buyer's market despite tightening stock and increasing buyer activity.
Leonard Kondowe, national property finance manager at Rawson Property Group, astutely terms the cut an "important psychological shift," emphasizing that confidence is returning, prompting people to plan again, with property re-entering those crucial conversations. Adrian Goslett, regional director and CEO of RE/MAX Southern Africa, wisely encourages strategic action from both buyers and sellers to capitalize on this "favourable rate window," noting improved affordability could mean a larger pool of potential buyers and more competitive offers.
Denese Zaslansky, CEO of the FIRZT Realty group, starkly warns against complacency, urging prospective buyers and investors to act swiftly. She highlights that the gross monthly income required to qualify for an average R1.6m home loan is now around R54,200 – a significant R3,600 less than a year ago. However, she cautions that even a modest 5% price increase over the next 12 months would negate much of this advantage, requiring buyers to earn an additional R2,700 per month to qualify, even if rates remain stable.
Banks Playing Their Part
Adding to the market's current momentum, Berry Everitt, CEO of the Chas Everitt International property group, points to banks easing deposit requirements in recent months, with first-time buyer deposits almost 9% lower year-on-year, now averaging R175,000. This, combined with the raised Transfer Duty threshold to R1.2m and the decision not to raise VAT in the Budget, significantly reduces the cash required for entry-level homeownership. Everitt notes this is already reflected in the market, with BetterBond recording a 2.2% year-on-year increase in home loan applications in April, a considerable rebound from the 15% decline observed in April 2024.
The Elephant in the Room: Future Cuts?
Despite the wave of immediate relief, the outlook for further rate cuts in 2025 remains a subject of critical debate among experts. Francois du Toit, director at Tyson Properties, cautiously points out that while inflation is currently low, the recent fuel levy hike announced in the budget could filter into essential goods and household expenses, potentially reigniting inflationary pressures and thereby "reigning in" future cuts. Chris Tyson, CEO of Tyson Properties, adds a layer of skepticism, suggesting the SARB will likely "wait at least another six months" to observe market dynamics before any further moves, foreseeing only a modest 0.25% or 0.5% decrease towards year-end at best.
Dr. Andrew Golding, CE of Pam Golding Properties, introduces a more significant long-term consideration. He concurs with the Bureau for Economic Research (BER) that it's a matter of time before the Reserve Bank introduces a lower inflation target. Golding suggests that SARB might strategically pause further cuts – not just due to global developments – to establish this new, lower target. While ultimately beneficial for long-term inflation reduction and creating future scope for additional rate cuts, such a move implies a period of strategic holding, prioritizing long-term stability over short-term stimulus.
Conclusion
In conclusion, last week's rate cut is undeniably a shot in the arm for the South African residential property market and a much-needed breath of fresh air for consumers. It signals renewed confidence and increased affordability, particularly for first-time buyers. However, the chorus of caution from some industry leaders suggests that this is not the harbinger of an overnight boom, nor a guarantee of further immediate rate reductions. Instead, it's a critical step in a longer, more complex journey, encouraging strategic action from all market participants amidst an environment of cautious but palpable optimism.
