While the Reserve Bank had said it had come to an end of its hiking cycle, few would have predicted a cut in the rates this year. In fact, a cutting cycle was only expected in 2018. However, South African Reserve Bank governor Lesetja Kganyago, announced today that the interest rate would decrease by 25 basis points, bringing the repo rate down to 6.75% and the prime rate down to 10.25%.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that the decision to lower the rates will bring much-needed relief to home owners and consumers who are still coming to terms with the continued rising cost of living. However, whether the rate cut will stimulate the property market will remain to be seen. He notes that uncertain policy and the recent credit downgrades have negatively impacted consumer confidence which has slowed the market in most areas throughout the country. Goslett says that a slower economy and rising unemployment rate has also played a role in the property sector, resulting in the decline of freehold property prices.
“During the second quarter of the year, the average price of freehold property declined from R1 161 481 to R1 139 604. The muted inflation of freehold homes can be largely attributed to the slower South African economy and rising unemployment rate. The unemployment rate in South Africa is currently at 27.7%, the highest it has been since 2008. The struggling economy and significant unemployment rate poses a threat to household income growth and erodes affordability. In turn, demand for property is constrained which negatively affected property prices,” says Goslett.