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Repo rate cut brings welcome relief for consumers

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The South African Reserve Bank's decision to reduce the repo rate by 25 basis points will provide some relief for hard-hit consumers and home-owners.

File Photo: Thomas White/Reuters

Cape Town – The decision to reduce the repo rate by 25 basis points announced by the Monetary Policy Committee of the South African Reserve Bank (SARB) will provide some relief for hard-hit consumers and home-owners.

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.  

Samuel Seeff, chairman of the Seeff Property Group, says the lowering of the repo rate to 6.75% (home loan base rate of 10.25%) would be a welcome saving for homeowners and “will certainly boost the property market”.

A cutting cycle was only expected in 2018 and regional director and CEO of Re/Max of Southern Africa, Adrian Goslett, says 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, whether the rate cut will stimulate the property market will remain to be seen, he says, noting 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. 

Seeff says although there is still plenty of activity to keep the property market ticking over and it is still in a better position than post-2007/8, the market is “shifting on the back of the poor political and economic outlook”.

Overall, he says, the market is slower with fewer sales, properties are spending longer on the market, stock levels are rising and price growth is slower and stalling in most areas outside of the Cape.

On the upside, he says, “the banks are still keen to lend and today’s rate decision is good news in that regard. The banks are however taking a more conservative approach to approvals and deposit requirements are on the rise”

Dr Andrew Golding, chief executive of the Pam Golding Property group, says consumers “could use some positive news right now and this downward shift, albeit only a quarter of a percent, is important as it sends a positive signal to the market and hopefully heralds the start of a downward shift in the interest rate cycle”. 

It will also impact favourably on market sentiment and therefore, activity in general.

“With inflation seemingly under control and the rand looking stronger, and against a backdrop of a sluggish economy, what South Africa needs is a stimulus for economic growth and investment.

“Despite the economic and socio-political challenges faced both locally and globally, South Africa’s residential property market remains notable for its ongoing resilience and appetite for property investment, ” says Golding.

Herschel Jawitz, CEO of Jawitz Properties say that “not only will the cut have an impact on affordability for home buyers and offer homeowners 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,” says Jawitz.

Bruce Swain, CEO of Leapfrog Property Group’s advice to home owners is to pay any monies saved by this rate cut into their home loans, as opposed to spending it on consumables. 

“The outlook for economic growth has worsened, the Rand remains vulnerable and there’s likely more political instability on the horizon so it’s critical to pay off as much debt as soon as possible to minimise household risk.”


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