The South African Reserve Bank’s decision to cut the repo rate by 25 basis points to 7.00% offers modest relief to the residential property market. This reduces the prime lending rate, used for calculating home loan interest rates, from 10.75% to 10.50%.
The modest reduction translates into an estimated saving of around R250 per month on a R1.5 million home loan over 20 years, nominally easing affordability for buyers and existing homeowners. Today’s cut brings total interest rate relief in SARB’s current cutting cycle, which started in September 2024, to 1%, with the repo rate having been cut from 8% to 7% over the period.
However, the SARB simultaneously revised its GDP growth outlook downward, signalling that economic momentum remains weak. As a result, consumers are unlikely to be buoyed significantly by this marginal lowering of interest rates, and property demand may see only gradual or shallow improvement.
From an economic perspective, our most pressing need is for economic growth and job creation, which is the rising tide that would lift the boats of all segments of the economy, including the property market.
Due to the SARB’s policy stance, which now deviates from their stated mandate, real interest rates remain too high to stimulate meaningful fixed capital formation – investments critical for expanding housing supply and creating employment in construction, manufacturing and other capital-intensive industries. This highlights the challenge of balancing inflation control with the need for growth-supportive policy.
National Treasury needs to step in and take control of the SARB, which is riding roughshod over its agreed mandate.
The lower yields on fixed-income securities, like bonds, mean that the capital value of those instruments have increased on the back of the announcement, meaning that the bond investors, including balanced funds and similar retail savings vehicles, have made some money today. The Rand has also weakened because of the announcement, as can be expected. This is likely, ignoring Rand volatility, to raise the prices of imports and have a small inflationary effect.
We invite members of the media to engage with Renier Kriek, Managing Director at Sentinel Homes, to gain valuable insights into the 2025 property market landscape, with a particular focus on last week’s rate cut announcement.
Please get in contact if you are interested to discuss this topic further.
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