Interest rate cut expected: What it means for South Africa’s property market
South Africa’s property market is on the cusp of significant change, presenting a fleeting opportunity for astute buyers, especially with the South African Reserve Bank's (SARB) Monetary Policy Committee (MPC) due to announce a repo rate decision on the 19 of September 2024.
3%.Com Properties shares that over the past three years, a series of interest rate hikes has reshaped the market, and with the SARB expected to reduce the repo rate by 25 basis points in the coming weeks, the window to secure a great deal is likely closing. This follows after Jerome Powell, Chairman of the US Federal Reserve Bank at a recent central bankers conference said “The time has come for policy to adjust,” on 23 August, all but confirming the upcoming interest rate cut.
Post-Covid boom and the shift to a balanced market
Following the COVID-19 pandemic, 2021 saw a surge in property market activity as pent-up demand and low interest rates fueled a relative boom. However, this momentum began to slow as the SARB initiated a series of rate hikes to curb rising inflation:
- November 2021: Repo rate increased to 3.75%, signalling the end of the ultra-low-interest rate environment.
- January 2022: Rate edged up to 4.00%, still supporting a vibrant market.
- March 2022: Reached 4.25%, with the market beginning to adjust.
- May 2022: Climbed to 4.75%, marking the start of a transition to a more balanced market.
- July 2022: Increased to 5.50% and September 2022 to 6.25%, maintaining a stable market where buyer demand and affordability were still relatively aligned.
From balanced market to affordability squeeze
The real estate market maintained relative balance as the repo rate climbed steadily from 4.75% in May 2022 to 6.25% by September 2022. During this period, property prices remained stable, with buyer demand and affordability generally aligned.
However, the situation changed dramatically as the repo rate hit 7.00% in November 2022, marking the onset of an affordability squeeze:
- November 2022: Repo rate at 7.00% initiated a noticeable decline in buyer activity.
- January 2023: Increased to 7.25%, further constraining affordability.
- March 2023: Climbed to 7.75%, leading to a significant slowdown in property transactions.
- May 2023: Peaked at 8.25%, creating a buyer’s market with heightened negotiation opportunities.
This affordability crunch has pushed many potential buyers out of the market, leading to softened property prices and more motivated sellers, particularly in distressed sales and long-market properties.
The Closing Window: The Anticipated September Repo Rate Cut
With the MPC decision expected to cut the repo rate to 8.00% on the 19 of September, buyers may be running out of time to capitalise on the current market conditions. The anticipated rate cut is likely to rekindle buyer interest, increasing competition and potentially driving up property prices.
For those looking to buy, the best opportunities lie in regions that have experienced significant price corrections, particularly in metropolitan areas and the luxury market.
Conclusion: Act Before the Market Shifts
The South African real estate market is poised for change, and the window to secure a great deal is potentially closing. With signals that the interest rate cut is likely just weeks away, now is the time to act before increased competition drives prices higher.
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To work out how much a buyer can truly afford, RE/MAX of Southern Africa shares the following tips:
- Calculate your debt-to-income ratio to see how much of your income is already committed to debt payments. The money left is now your base amount to work out how much you want to pay on a home loan.
- Top tip: are there any debts you could pay off quickly to free up more income?
- Work out how much money you typically spend on lifestyle expenses (consider things like birthday presents, entertainment costs, hair and beauty expenses, etc.) These amounts vary each month, which is why it can be tricky to work out a budget for these items.
- Consider your priorities. For example, if travelling is important to you, then it might bring you more joy to compromise on the size of your home than to compromise on your ability to afford getaways.
- If all else fails and you’re not sure where to start, a common guideline is that your monthly housing costs should not exceed 28% of your gross monthly income, and your total debt payments (including housing costs) should not exceed 36% of your gross monthly income.
