Hanging from a string: many South Africans need a big interest rate cut to stay in the property market. Picture: UnSplash/Harper van Mourik
The property sector has come out in strong support of a robust and decisive interest rate cut, while some believe a 25bps cut this week is a given, others say it should be no less than 50bps to make some impact on the lives of South Africans.
Samuel Seeff, chairman of the Seeff Property Group, says the Reserve Bank must consider a minimum 50bps to counter decreasing growth and unemployment risks.
“The time to be bold is now.
“We have the highest real interest rate in the world (differential between the interest rate and inflation, according to Dr Roelof Botha), while the economy is limping along and barely growing. Meanwhile unemployment has climbed to an astronomical 32%, higher when other factors are considered.”
Cuts will be good for the economy, the country, and property market, he says.
Seeff says it simply makes no sense for the Bank to persist with an interest rate policy concerned about inflation at between 3% to 6% when, clearly, the most important element for our country must be GDP growth, and with that greater employment.
Another 25bps rate cut is simply not going to provide the urgent growth boost that is needed, he said.
However some property heads believe even a 25bps cut will help ease some of the pressure on consumers.
Herschel Jawitz, CEO – Jawitz Properties says with inflation at the lower end of the Reserve Banks inflation target, South Africans can look forward to a further interest rate cut of .25% this week. This is expected to bring the cumulative decrease in interest rates to .75% since September 2024.
“Should this take place, for South African consumers, the impact will be to further reduce the strain on disposable income by reducing the monthly repayments on all forms of debt including home loans, car repayments and credit card debt. Each cut in rates may be marginal but the overall impact starts to add up. On a million rand home loan, the cumulative decrease in payments if rates are cut this week by .25% will be R515.19 per month, says Jawitz.
"it will take some time before the increase in demand translates into price growth, but further rate cuts will certainly add to the positive momentum in the market.“
Absa Home Loans managing executive Nondumiso Ncapai said while interest rates remain high, many consumers would remain under strain in the short term.
“While declining interest rates, the introduction of the Government of National Unity and the stable power supply have brought positivity to the market, it may still take some time for consumers to recover financially.”
Meanwhile Seeff believes the Bank will likely look to protect the exchange rate, and be concerned that if the US does not drop its rate and South Africa does, people may shift money there, and inflation may go up due to the weaker exchange rate.
“However, we need GDP growth and unemployment to decrease, and you cannot do it with these high interest rates. Not addressing the growth and unemployment crisis poses a far greater risk to South Africa.”
Seeff says the Bank has previously stepped in to provide interest rate relief during the Covid-pandemic, and should do so again.
The risks are simply far bigger than protecting the exchange rate, he says.
“The biggest risk right now is not inflation, but low to no growth and rising unemployment.
Seeff says it will also be good for reinvestment stimulation. If the economy grows, you may very well have the offset between those who are not investing in South Africa or who, because of our weak interest rate return, might be motivated to rather invest in a growing South Africa.
The exchange rate may then, in fact, get stronger again, so it's not guaranteed that an interest rate cut will do damage to the exchange rate.
Seeff also expressed concern that there seems to be an appetite to keep the interest rate higher for longer with only two rate cuts of 25pbs each this year. He reiterated that there needs to be at least four cuts of 25bps each, kickstarting with a 50bps cut this week.
“We have seen a pickup in momentum in the property market off the back of the two rate cuts late last year, and that momentum needs to continue. It should be encouraged and pushed, and can only be done with a lower interest rate.
“Now is not the time for a conservative approach in South Africa, the Reserve Bank needs to be bold,” concludes Seeff.
Despite these please, some economists do not believe there will be significant interest rate cuts this year with some predicting a maximum of a mere 50 basis points (bps) cuts for the entire year of 2025 and others even predicting only one rate cut.
Lightstone Property managing executive for the Real Estate Cluster Hayley Ivins Downes said while 2023 posed challenges, steady improvements in 2024 left them feel optimistic for 2025.
“Interest rates are expected to drop, though not as much as we’d hope, but the momentum from late 2024 suggests a stronger, recovering property market,” Downes said.