Rate cut welcomed, but it should have been 50bps

While the 25bps interest rate cut by the Reserve Bank, taking the repo rate to 7.50% (from 7.75%), and the prime rate to 11% (from 11.25%), is welcome news for the economy and property market, Samuel Seeff, chairperson of the Seeff Property Group says it’s simply not enough.

A 50bps cut would have been far more meaningful, and he says there was adequate support for the Reserve Bank to counter the economic stagnation and unemployment risks with a more robust cut. The country can no longer afford what is effectively the highest real interest rate in the world (differential between the interest rate and inflation) while the economy is limping along, barely growing, and unemployment is spiking.

Seeff says the lack of growth and unemployment is a far greater risk than inflation. Given that GDP growth and employment is the most critical element right now, it seems out of step for the Bank to persist with the interest rate policy aimed at containing inflation between 3% to 6% when inflation is in any event at the bottom of the target range.

Our view is that the Bank must prioritise GDP growth and reduced unemployment over exchange rate concerns. GDP growth and increased employment cannot be achieved with high interest rates. Only bolder rate cuts can provide the necessary economic stimulus, and there is historic precedents for the Bank to step in such as during the Covid-pandemic period for example.

Seeff says while there may be a trade-off on the exchange rate and concern about the impact on investment, a growing economy may well provide adequate counter-balance to this, and in fact encourage more investment. We could then potentially see the currency get stronger.

Seeff says the rate cuts last year provided some impetus for the property market with sales volumes increasing towards the latter part of the year. While this rate cut provides a further boost, he says more interest rate relief is needed to get the market back to the volumes of two years’ ago, and the resulting economic and tax boost that this can provide.

Nonetheless, it is a good time for buyers to get into the market and find good value, especially in Gauteng and inland provinces where stock levels are still high. If the economy remains stable, and we start seeing some growth, then on the whole, Seeff believes the property market should perform considerably better compared to last year.

Areas operating from a low base such as Gauteng could see good growth with increased sales volumes. Once stock levels start coming down, prices can then finally start rising more meaningfully.

Seeff believes the Western Cape, and most coastal areas which performed better last year compared to the inland areas will likely continue its good performance. Many areas in the Cape especially are already seeing low stock levels, and prices could again rise at inflation-topping levels.

As a result of the 25bps rate cut, mortgage repayments will reduce by:

R750 000 bond – from R7 869 to R7,741– thus saving R128
R900 000 bond – from R9 443 to R9,290 – thus saving R153
R1 000 000 bond – from R10 493 to R10,322 – thus saving R171
R1 500 000 bond – from R15 739 to R15,483 – thus saving R256
R2 000 000 bond – from R20 985 to R20,644 – thus saving R341
R2 500 000 bond – from R26 231 to R25,805 – thus saving R426
R3 000 000 bond – from R31,478 to R30,966 – thus saving R512
R5 000 000 bond – from R52,463 to R51,609 – thus saving R854
(Based on a 20-year repayment period at the prime rate)

Issued by: Gina Meintjes