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How the interest rate cut will affect the property market

While the Reserve Bank had said it had come to an end of its hiking cycle, few would have predicted a cut in the rates this year.  In fact, a cutting cycle was only expected in 2018 However, South African Reserve Bank governor Lesetja Kganyago, announced yesterday that the interest rate would decrease by 25 basis points, bringing the repo rate down to 6.75% and the prime rate down to 10.25%.

"The decision by the Reserve Bank to cut rates has been welcomed as a decisive move," says Herschel Jawitz, CEO of Jawitz Properties on how this will impact the property market, and in particular first-time buyers.

Jawitz adds that not only will the cut have an impact on affordability for home buyers and offer home owners some respite in terms of their disposable income, but more importantly consumers may start to feel more confident about the direction of the economy.

"If consumers feel more confident, they will make longer term spending decisions of which buying a home is one of the biggest. The impact of the 0.25% cut in rates for every million rand on a 20 year mortgage at the new prime rate of 10.25%, will be a monthly decrease in repayments of R160. If you add to this the further reductions this year in transfer duty thresholds, first time buyers have a further opportunity to get into the market," he says.

Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that the decision to lower the rates will bring much-needed relief to homeowners and consumers who are still coming to terms with the continued rising cost of living.

However, he says, whether the rate cut will stimulate the property market will remain to be seen. He notes that uncertain policy and the recent credit downgrades have negatively impacted consumer confidence which has slowed the market in most areas throughout the country. Goslett says that a slower economy and rising unemployment rate has also played a role in the property sector, resulting in the decline of freehold property prices."

“During the second quarter of the year, the average price of freehold property declined from R1 161 481 to R1 139 604. The muted inflation of freehold homes can be largely attributed to the slower South African economy and rising unemployment rate. The unemployment rate in South Africa is currently at 27.7%, the highest it has been since 2008. The struggling economy and significant unemployment rate poses a threat to household income growth and erodes affordability. In turn, demand for property is constrained which negatively affected property prices,” says Goslett. 


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