The local housing market comprised 6.91 million properties, with 76% of these valued at less than R1.2 million and two-thirds priced at R900 000 or less (Centre for Affordable Housing Finance in Africa, 2024). Photographer:Tracey Adams/African News Agency(ANA)
Focusing solely on rate cuts to gauge the country’s economic trajectory is misleading, says Dr Farai Nyika, an academic at the Management College of Southern Africa's(Mancosa).
Following the recent South African Reserve Bank’s (SARB) 25 basis points rate cut, the education institution’s academic Dr Farai Nyika said he did not see a case for optimism regarding the economy’s outlook based only on this recent rate cut.
He argues this is because the effects of monetary-policy changes typically take up to 18 months to materialise in the broader economy due to policy transmission lags.
“If anything, I remain pessimistic, particularly given that GDP contracted by 0.3% in the fourth quarter of 2024 despite a sustained downward trend in fuel prices. Therefore, I interpret this rate cut as a warning sign that economic challenges may persist before any meaningful improvement occurs,” Nyika said.
He added that in 2023, the local housing market comprised 6.91 million properties, with 76% of these valued at less than R1.2 million and two-thirds priced at R900 000 or less (Centre for Affordable Housing Finance in Africa, 2024).
He said while these figures do not include 2024 data, they provide a relevant context for assessing the impact of the recent cut on homeowners.
“A 0.25% reduction equates to about R156 monthly saving on a R1-million bond-an amount that is unlikely to make a significant difference for the average homeowner, particularly given the rising costs of homeownership (including maintenance, insurance, and municipal rates). Additionally, that amount buys very little at the supermarket.”
However, the academic said the rate cut impact is more pronounced for large property groups and developers, where economies of scale amplified financial outcomes.
“In this sector, a 0.25% rate cut can mean the difference between bankruptcy and breakeven, as many developers operate on extremely thin margins in the current economic climate.”
Nyika added that the implications of rate changes for homeowners and bondholders would vary depending on their geographic location.
“High-growth property markets, such as those in the Western Cape - particularly Cape Town - tend to be resilient to interest rate increases (though such hikes are unlikely in the very short term) and accelerate in response to rate cuts due to strong demand.
“Conversely, stagnant markets, such as Port Elizabeth, are unlikely to experience significant changes in housing demand.
“In any case, any financial relief that bondholders might gain from potential future rate cuts is likely to be offset by substantial electricity and municipal rate hikes anticipated around mid-2025.”
Real Estate Business Owners of South Africa (REBOSA) said the recent rate cut of 25 basis points was a welcome step in alleviating affordability constraints, stimulating investment activity, and restoring confidence in the housing market.
However, the organisation's CEO Jan le Roux said the full impact will depend on broader economic factors, particularly employment growth, wage stability, and lending appetite from financial institutions.
“A measured approach to rate cuts, coupled with supportive economic policies, will be essential in ensuring long-term sustainability in the real estate sector,” Le Roux said.
He added this reduction brings much-needed financial relief to South African consumers still burdened by high debt repayment obligations - up to 70% of disposable income, according to the National Credit Regulator(NCR).
“The residential property market, particularly the mid-market (R800 000 to R1.5 million) and first-time buyer segments, is expected to see a positive response as affordability improves.”
For existing homeowners, Rebosa said the reduction translates to lower monthly bond repayments, offering crucial financial breathing room after successive rate hikes over the past two years.
“A 25 bps reduction translates to monthly savings..., which accumulates significantly over time. This not only prevents potential financial distress for some but also stabilises property values by reducing the risk of forced sales and foreclosures.”
The organisation added that first-time buyers who have seen affordability diminish due to the previous rate hikes now stood to benefit as lower borrowing costs improve their ability to qualify for home loans.
“Mortgage approval rates have been improving, with banks offering average concessions relative to prime improving across all regional markets in 2024, supporting increased participation in the property sector.”
For investment opportunities and market growth, Le Roux said the latest rate cut enhances conditions for property investors. He said industry observations indicate a resurgence in buy-to-let investments with factors such as sustained demand for rental properties, driven by affordability challenges in homeownership, have contributed to this trend.
Recent data from PayProp's Q3 2024 Rental Index indicates that South Africa's residential rental market experienced an annual growth rate of 4.8% between July and September 2024.
With house price growth recovering (Statistics South Africa’s Residential Property Price Index Report released on 12 December 2024 - the annual national residential property price inflation reached 2.9% in July 2024, slightly up from 2.8% in June 2024), he said investors are likely to see improved returns.
“While the Western Cape maintains its position as a leading property market, both Gauteng and Mpumalanga are experiencing increased activity. This uptick is driven by greater financing availability and heightened demand from first-time buyers seeking affordable housing options,” le Roux said.
Absa Home Loans Head for Credit Kamini Ramsamy said they retain their baseline view of one further 25bps cut in March but pointed out that uncertainty is elevated.
“While we read the recent MPC statement as a clear signal of the need for caution in a highly uncertain environment, the SARB acknowledged that this rate decision leaves the monetary policy somewhat restrictive.
“With inflation expectations tracking around the mid-point of the target and headline CPI inflation likely to remain below the mid-point of the target range until Q4 25, in our view, we see scope for a little more policy easing,” Ramsamy said.
However, Absa Home Loans said given the overall uncertainty, the evolution of data and risks over the coming months will be critical to the SARB’s assessment of whether to ease the policy stance further closer to neutral.
PROPERTY