Just because the South African Reserve Bank’s (SARB) decision to keep the repo rate unchanged was expected, it does not mean South Africans should be celebrating, or even grateful.
Consumers are under extreme financial pressure and homeowners are being forced to give up their homes; the economy and property market desperately need a rate cut.
And the Monetary Policy Committee (MPC) should have done that this week, property experts say.
While its decision to keep the rate unchanged was unsurprising, Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, says it is also disappointing.
“Consumers need a break. There’s no give in household budgets, the bulk of which is going towards servicing debt.”
She says the repo rate announcement is like the Consumer Price Inflation (CPI) figures that came out on Wednesday – nothing we should be happy about.
“We’re grateful that it’s unchanged but it’s at a 14-year record high and has been since early last year. And while December’s CPI dropped to 5.1 percent, it still leaves us with an annual average of six percent, which is at the very top end of the Reserve Bank’s target range.
“We keep setting the bar lower and lower. Being grateful that the repo rate has stayed at a painful high or that CPI didn’t top six percent for the year is the economic equivalent of getting beaten up in a mugging and, afterwards, being chipper because you’re not dead, rather than outraged that you were mugged in the first place.”
In real terms, Geffen says salaries have dropped in value by nearly seven percent compared to pre-pandemic household income in 2019.
“So, if you ask South Africa’s over-burdened consumers what a December CPI of 5.1 percent or an unchanged repo rate means to them, the likely answer will be ‘nothing’.
“Their reality is that households are drowning in bond repayments; they dread going through a supermarket checkout and consider a fuel card swipe to be reasonable grounds for a panic attack.”
Until the interest rate drops, it’s going to be tough for first-time buyers to get onto the property ladder and the market overall will be muted.
“Homeowners only have one choice right now, which is to save where they can and pump any excess cash into servicing the primary debt on their bonds.”
She hopes interest rates will come down towards the middle of the year. This will reignite the industry and put it back on an upward trajectory.
Samuel Seeff, chairman of the Seeff Property Group, says the MPC’s decision to keep the rate unchanged was “a missed opportunity” to boost the economy and property market. Given that inflation has dipped to the lowest level in months, the Bank could have considered a 0.25 percent rate cut.
“At the very least, we would like to see the Bank start cutting as soon as the March meeting, rather than later in the year.
He maintains that the SARB has been “too hawkish” and that keeping the rate high for so long has hampered both the economy and property market.
“This has basically resulted in all of the positive gains of the 2022 year evaporating.
“The higher rate has been especially impactful on first-time homebuyers and the lower price bands while an increasing number of homeowners are now looking to sell for financial reasons.”
Most notably, he says capital appreciation has largely stalled with investors consequently seeing little incentive in the property market right now.
“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.”
Seeff adds: “After the buoyancy of the 2022 year, buyers and investors are becoming weary at the lack of will and sense of urgency by government to resolve underlying issues vital to reigniting the economy and property market.”
Ending the load shedding crisis and addressing infrastructure maintenance and development are top of this list and necessary for economic and property market growth.
While Dr Andrew Golding, chief executive of the Pam Golding Property group, believes the stability of the repo rate is positive news for the housing market, he says the current higher debt costs as a result of the prevailing interest rates means that consumers – including homebuyers and existing mortgage holders – and businesses remain under pressure amid a tepid economy.
Lower inflation and interest rate cuts are inevitably positive for consumer confidence, a crucial ingredient for renewed buoyancy in the housing market.
Citing FNB data which reveals that financial pressure accounted for 25 percent of all residential property sales in Q4:23, he says reduced interest rates would help boost economic confidence and encourage increased housing market activity. A new cycle of real house price growth will then also be likely.
On a more optimistic note, Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says the stable rate will at least avoid placing further strain on debt holders.
“Many, including a host of first-time buyers, bought when interest rates were at their lowest back in 2020 and have had a harsh introduction to homeownership. Thankfully, it seems we are entering into a period of a bit more stability now.”
Economists predict an interest rate cut later this year, and although this will probably only be a 0.25 percent cut, it will have a positive impact on homeowners’ debt repayments and buyers’ affordability concerns.”
He also hopes that this will be the start of further stability.
“It is likely that we are nearing the end of the interest rate hiking cycle and are beginning to see the light at the end of the tunnel.”
IOL Business