Unchanged repo rate disappoints property industry

Interest rates

SARB has announced an unchanged repo rate of 3.5% with the prime lending rate sitting at 7%.

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa believes that with house price appreciation and rental escalations remaining subdued for some time, this would have been enough to validate a further interest rate cut to assist in stimulating further growth within the property market.

Although the property market is very much active currently, many buyers and sellers are struggling to make ends meet within the current economy, which puts downward pressure on asking prices. An interest rate cut could have helped alleviate some of this financial pressure, allowing room for property prices to strengthen,” he explains.

While it is unlikely that we shall see interest rates climb this year, Goslett still advises homeowners to leave room in their budget for a possible increase of around 0.5 points during 2021.

The Monetary Policy Committee’s decision to leave the repo rate unchanged at 3.5% was anticipated by most market commentators“, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

We believe that while the MPC erred on the side of caution in holding the repo rates steady, that there is certainly a compelling case for a further reduction, which would provide some relief to financially distressed households and businesses”.

Rather than cutting interest rates further, the Reserve Bank may opt instead to keep rates lower for longer, which would be facilitated by inflation remaining below the mid-point of the Reserve Bank’s 3%-6% inflation target”.

This decision by SARB is disappointing for the economy and property market“, says Samuel Seeff, chairman of the Seeff Property Group.

There is ample reason for a cut given the split decision and missed opportunity in November. Since then, the Rand has strengthened and inflation dipped to 3.1%, the lowest in 16 years. Although expected to rise, analysts believe it will remain below the midpoint of 4.5% providing enough reason for a rate cut”.

We have seen what last year’s rate cuts did for the economy and property market with better-than-expected results during the second half of 2020. While the property market is poised to continue its buoyancy, we now again find ourselves with tighter lockdown restrictions amid a second wave resurgence of the Covid-19 Pandemic”.

The risk of the Reserve Bank not taking the opportunity to provide a stimulus is that the economic impact on employment and household finances could start eating into the gains made last year. While we have not seen the anticipated levels of distressed sales, the longer the Covid Pandemic lingers, the higher the risk”.

We welcome the MPC’s decision, which will keep the prime lending rate at its record-low of 7%. Five consecutive repo rate cuts last year set the scene for the housing market’s significant recovery, and now homebuyers will have a further opportunity to apply for a bond in 2021 at this competitive rate” comments Carl Coetzee, CEO of Betterbond.

It is possible that the economic impact of the second wave of the COVID-19 pandemic may result in one or two modest cuts in the repo rate during the year to provide some additional economic relief once the Rand begins to strengthen”.

There is certainly opportunity for movement, and we hope that when the MPC meets again later in the year, once the vaccine has been rolled out and inflation stabilises, a further cut will be announced to once again jumpstart economic recovery.”