The property industry has called on the South African Reserve Bank (Sarb) to start cutting interest rates as property sales have plummeted by 25% due to buyers delaying their purchases to wait out the high borrowing costs.
This comes as the Sarb’s Monetary Policy Committee (MPC) on Thursday is expected to keep the repurchase rate (repo rate) unchanged at 8.25% since May, 2023 as headline consumer inflation remains above the 4.5% midpoint of the 3% to 6% target range.
However, the chance of one interest rate cut at the end of this year has grown as the US June’s headline inflation fell to 3.0% below the expected 3.1% and down on May’s 3.3% year on year.
Seef Property Group on Friday said the delays in cutting the interest rate were doing more damage than good to the economy and property market.
Seef chairman Samuel Seeff said property transaction volumes have now plummeted by 25% to a lowly 17 350 monthly average compared to 23 100 in 2021 when the interest rate was at 7.25%, following a promising start to the year.
“The economy was just starting to grow again when the rate was below 10%, and at 11.75% it is simply too high and damaging to the economy and property market. We now call on the MPC to take a bold stance,” Seef said.
“Even just a 25 basis point cut will send a strong signal that the central bank is confident about the economy, and that better times for growth are just around the corner, which will have a huge knock-on effect.”
According to the FNB Residential Property Barometer released last week, residential property prices softened slightly in June on declining demand as the high interest rates continue making it difficult to sell houses.
Since the start of the rates-hike cycle in November, 2021 the Sarb has hiked interest rates by 475 basis points to the highest levels in 15 years.
With the repo rate at 8.25%, the current prime lending rate is 11.75%, meaning that the monthly repayments on a R1 million mortgage bond have increased by more than R3 000 to finance at the current interest rate.
Seef said that the current strength of the rand against the dollar, which recently dipped below the R18/$1 barrier, the lower inflation outlook and two recent notable petrol price cuts were ample reasons for the bank to cut the rate.
However, economists on Friday said they were expecting the MPC to maintain its holding pattern, with the Sarb’s inflation forecast unlikely to change much from those put forward in May.
Nedbank chief economist Nicky Weimar said the global and domestic price pressures have subsided further in recent months.
The critical upside risks cited by the MPC at its May policy meeting have either not materialised or eased slightly, and the rand held up better in the face of political uncertainty than most expected.
“Altogether, recent developments point to moderating inflation amid still patchy economic activity. We expect these trends to continue during the remainder of the year, creating room for a moderate easing in monetary policy later this year,” Weimar said.
“Our forecast remains unchanged, expecting the first 25 basis points cut in September followed by another in November, taking the repo rate to 7.75% and the prime lending rate at 11.25% by the end of this year.”
Investec chief economist Annabel Bishop also said the increased prospect of a rates cut in September in the US had a positive impact on the rand, which helps lower inflation outcomes.
“However, much will depend on the inflation outcomes both in SA and in the US for the start of the interest rates-cut cycles,” Bishop said.
“In SA, the Sarb has reiterated it will not cut interest rates until CPI inflation reaches 4.5% year on year, and is expected to remain there,” she said.
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