The South African Reserve Bank (SARB) has cut interest rates for the first time since 2020, giving the residential property market a much-needed boost.
At its September meeting, the Monetary Policy Committee (MPC) voted to cut the prime lending rate by 25 basis points from 11.75% to 11.5%.
Homebuyers will now more easily afford bonds, while debt repayments will also be cheaper – potentially helping with rental affordability.
And further rate cuts are likely. MPC members debated a 50 basis point cut last month, and economists predict another cut in November. Investec projects that the prime rate will fall to 10.25% by the end of March 2026.
Things look even better with better-than-expected inflation figures. Consumer inflation dropped to 4.4% in August, taking it below the midpoint of the SARB’s 3-6% target range for the first time since April 2021.
That’s good news for frustrated first-time buyers, many of whom have had to keep renting due to the high cost of bond repayments.
A boost for sales – but what about rentals?
Will the fall in interest rates start a stampede of first-time buyers, leaving rental properties vacant? Probably not. Someone taking the average 20-year bond of R1 458 924 would save R252 a month – not much, compared to the monthly payment of R15 558.
In fact, some agents think that lower interest rates will be good for the residential rental sector. Tenants are more likely to pay their rent more reliably if they don’t have to spend as much on debt repayments. According to the most recent PayProp Rental Index, the average rental applicant spent 46.7% of their income repaying debt.
However, any effect, positive or negative, will likely be small for now. Investec projects that rates will remain historically high for a while. (Before the current cycle of rate increases, the last time the prime rate was above 10% was in 2009!)
However, plenty of agency bosses are optimistic that the rate cut will boost activity in the market. . Chris Tyson, CEO of Tyson Properties, welcomes the SARB’s interest rate cut and expects further reductions, totaling about 2% by the end of next year. He advises homeowners to maintain pre-cut repayment amounts to reduce bond terms and believes this will positively impact the property market over the next 18 months. And Berry Everitt, CEO of the Chas Everitt International Property Group, predicts the real estate sector is heading for a recovery.
