Anecdotal evidence indicates that the impact of local interest rate cuts may take up to 18 months to materialise. However, Grant Smee, CEO of Only Realty Property Group, believes the residential property market might begin to show signs of recovery sooner than anticipated.
“In recent years (and barring the Western Cape), South Africa’s residential property industry has largely been viewed as a sleeping giant, driven by excess supply and low demand,” he says.
“However, as further rate decreases are implemented, we could see activity accelerating demand in parts of the country – especially Gauteng which has seen a rebound in recent months.”
By the end of 2024, it is anticipated that South Africa will see a total rate cut of 50 basis points, with more to follow in 2025. Smee argues that one cannot deny what reductions – albeit sometimes minor - could do to bolster the property market. “We anticipate improved affordability and increased demand across most of the country.”
In addition, lower consumer inflation (now at 4.4% - Aug ‘24) will go a long way in supporting property price growth. “Disgruntled sellers and hesitant buyers in select parts of the country may find this to be the lifeline that they needed as house prices begin to strengthen,” says Smee.
Speaking to the potential of a long-awaited and highly anticipated sellers’ market, Smee says that while he remains hopeful that sellers will soon have the upper hand, the industry still needs to wade through high available inventory levels.
Four residential property predictions in the next 18 months
In addition to a boost in consumer confidence, improved house prices, and high demand, Smee shares his top four predictions for the property market in a lowered interest rate environment as follows:
1) Increased affordability – driven by bank loans
“One of the driving factors that we have witnessed since the start of the COVID-19 pandemic was the banks’ unwavering commitment to stimulating homebuying activity,” says Smee.
“Now as rates drop, we expect the country’s major lenders to provide generous rate discounts to attract more buyers through the prospect of cheaper borrowing costs.”
As a result, homeowners will reap the rewards of lower bond repayments, making room for more savings, home improvements, and financial stability.
“Even at a 25-basis points reduction, homeowners will save R173 on an R1 million home loan per month, R354 on an R2 million home loan per month, and R605 on a R3.5 million home loan per month (as per Ooba Home Loans). This little number could equate to tens of thousands over the term of a home loan.”
2) More first-time homebuyers
“As it stands, first-time homebuyer demand remains subdued; however, I do believe that savvy first-time homebuyers have been waiting in the wings for rate decreases. We have seen more first-time homebuyers focused on building up a deposit and we hope that the next 18 months will see improved activity amongst this vital category.”
Smee adds that Gen Z, South Africa’s latest generation of homebuyers, might use this to get a foot on the property ladder. “Data shows that this generation has a strong affinity to homebuying so it will be interesting to see how this plays out.”
3) Bond refinancing
According to Smee, lower interest rates allow existing homeowners to refinance their home loans at better terms, lowering their monthly payments and freeing up disposable income.
“This added financial relief can stimulate spending in other sectors of the economy.”
4) More buy-to-let and new builds
Lowered interest rates spell good news for homeowners opting for investment properties that will yield greater returns. “The lower the bond repayment, the more a rental payment can cover.”
In addition, Smee says that an improved economic outlook could support financial growth for tenants too. “Tenants too have struggled with affordability in recent years and a boost in consumer confidence and subsequent economic growth could bode well for this portion of this market.”
Finally, Smee adds that lowered interest rates will help to boost demand for renovations (through financing) and new developments.
“New developments have been privy to declining volumes in recent years, mainly due to lowered demand. However, they do boast big benefits – especially for first-time homebuyers – who are looking for lock-up-and-go, mixed-use sites that prioritise security and community living. In addition, no transfer duties are required,” he concludes.
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