Repo rates impact on the property market - a must-read!

South Africa's property market welcomes the South African Reserve Bank's commitment to maintaining the repo rate at 8.25% in January 2024, signalling stability. While the decision is viewed positively for the housing sector, experts express optimism for potential interest rate cuts in the future, anticipating a boost in buyer confidence and property market activity throughout the year.

1 - Repo rate remains unchanged

The South African Reserve Bank (SARB) unanimously decided to keep its key repo rate at 8.25% on January 25th, 2024, as widely anticipated, thereby keeping borrowing costs at their highest since 2009. The bank highlighted the persistence of inflation risks while emphasising a balanced evaluation of risks to medium-term growth. It noted that the return of inflation to the target has been slow, despite the expected gradual moderation. 

2 - Inflation and interest rates

As of January 17, 2024, South African central bank governor Lesetja Kganyago said that inflation is expected to average 5% in 2024. 

It is also worth keeping in mind that if you have investments and savings, changes in interest rates will also affect what your investments earn: as the interest rate goes up, your return goes up, and as they drop, your return will also reduce.

The SARB's Monetary Policy Committee meets six times a year - in alternate months, starting in January - and it is at these meetings that they make decisions about the interest rate. This means that, in theory, the repo rate could change six times a year.

3 - Regional housing performance

The housing market in South Africa exhibits varying dynamics across different regions, influenced by factors such as economic conditions, supply chain dynamics, and local market sentiments.

Cape Town:

• Cape Town continues to outperform other major metro housing markets, exhibiting resilient growth even amidst challenging economic conditions.
• According to the Residential Property Index, house price growth in Cape Town stood at 3.46% from January to September 2023.
• The market in Cape Town remains buoyant, with strong demand observed particularly in prime, sought-after locations.

Johannesburg:

• Johannesburg's housing market saw a slight decline in house prices during the period, reflecting subdued demand and economic challenges.
• House price growth in Johannesburg was recorded at -0.68%, indicating a marginal decrease compared to other regions.

Nelson Mandela Bay:

• Nelson Mandela Bay experienced moderate house price growth, with the market remaining relatively stable compared to other regions.
• House price growth in Nelson Mandela Bay averaged 1.51% during the same period.

Tshwane:

• Tshwane's housing market showed signs of resilience, with modest house price growth recorded.
• House price growth in Tshwane averaged 1.41% from January to September 2023.

Ekurhuleni:

• Ekurhuleni witnessed moderate growth in house prices, reflecting steady demand in the region.
• House price growth in Ekurhuleni stood at 1.37% during the period under review.

eThekwini:

• eThekwini experienced relatively stable house prices, with modest growth observed in the housing market.
• House price growth in eThekwini averaged 1.05% from January to September 2023.

Overall, while Cape Town continues to lead in terms of house price growth and market resilience, other regions such as Nelson Mandela Bay, Tshwane, and Ekurhuleni also demonstrate stability and moderate growth. However, Johannesburg's housing market faces challenges, with slight declines in house prices observed. 

4 - Expert opinions

Many economists predict that we will see an interest rate cut within the first half of the year. While it is not expected that this cut will be a large one, possibly only 0.25%, it will have a positive impact on homeowners' debt repayments and buyers' affordability concerns. Elevated interest rates haven't halted the property market entirely, they have impeded growth and restrained activity for an extended period. 

5 - Market outlook for 2024

In 2023, the property market experienced a relatively slow year with standard performance across many key metrics. However, all signs currently point towards a very different experience in 2024. One of the most promising shifts to happen at the end of 2023 was the stabilisation of inflation, both locally and globally.

Interest rates determine how much consumers will have to pay to borrow money to buy a property, and they influence the value of real estate. Low interest rates tend to increase demand for property, driving up prices, while high-interest rates generally do the opposite. When the repo rate changes, so does the prime lending rate. If you have a home loan, the bank adjusts your monthly instalment to accommodate that change.

6 - Election impact

Elections, falling interest rates and geopolitics loom large in the outlook for 2024. There are around 40 democracies that will go to the polls this year representing 41% of the global population and 42% of global GDP. 

Politicians will do whatever they can to remain in power, government spending will no doubt ramp up into elections and this may factor into broader fiscal deficits that are already an issue for many.

Leading up to elections, there might be increased market activity as people look to finalise transactions before any potential changes in the political landscape.

Political stability can influence interest rates. If the election is expected to bring stability, it might positively impact interest rates, making it a good time for buyers to secure favourable mortgage rates.

The prevailing optimism surrounding the stability of current interest rates is a source of relief for both individuals and businesses alike. As financial markets continue to navigate through various economic landscapes, the prospect of interest rates remaining unchanged provides a sense of predictability and security. This stability fosters an environment conducive to long-term financial planning, encouraging prudent decision-making and investment. Businesses can strategize with confidence, and consumers can make informed choices regarding loans and mortgages.

The unchanged repo rate, coupled with considerations of inflation and interest rates, has shaped the housing market's dynamics. Assessing regional housing performance, expert opinions, and market expectations provide a comprehensive outlook for 2024. Additionally, the looming election adds another layer of influence on the market's trajectory.

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