South Africa’s politicians have formed a national unity government, and investors and property professionals are looking forward to greater stability and growth.
South African asset prices grew sharply after the confidence-boosting announcement on 14 June, and the Rand also strengthened. While house prices tend to be slower to react to the headlines, estate agents believe they should follow suit.
According to John Herbst, CEO of Fine & Country Sub-Saharan Africa, a stronger currency goes hand in hand with stronger house price growth. But that could in turn reduce foreign investment in South African property as overseas buyers get less for their money.
Indeed, we may already be seeing signs of a recovery: the Lightstone Housing Index for May shows that year-on-year house price inflation reached 3.22%. That’s still sluggish, but growth has now accelerated in each of the past four months. Meanwhile, monthly house price growth rose to 0.42%, close to the peak it reached in late 2020.
Interest rates to fall?
Stability and economic growth could encourage the South African Reserve Bank (SARB) to start cutting interest rates. The Monetary Policy Committee’s (MPC) last statement in May was its most positive for some time despite the decision to hold rates steady.
But property experts say homeowners shouldn’t get their hopes up for a rate cut at the June MPC meeting. Inflation remained steady at 5.2% in April and May, within the right range but still adrift of the SARB’s target of 4.5%. However, they are more hopeful for a 0.25% interest rate cut at the following meeting in September. A fall in bond interest rates could encourage more buyers back to the housing market after a prolonged period of low activity.
What about rents?
The PayProp Rental Index for Q1 2024 showed that rental growth, while still in effect, fell for the first time since 2021, to 3.8% from 4.6% in the previous quarter. An uptick in economic growth could help lift rental growth again, but for now, high inflation and interest rates have reduced tenant affordability and limited rent increases.
As with house price growth, it could take a while for rental growth to pick up again. Inflation isn’t expected to reach its 4.5% target until Q2 2025. On the other hand, it is also possible that falling interest rates could reduce rental growth if they encourage more people to buy homes instead of renting.
