It’s still tough to get on to the property ladder and stay on it. Picture: Unsplash/Breno Assis
Even though there have been three consecutive interest rate cuts - the latest of 25bps by the SA Reserve Bank today - affordability is still a major barrier for potential property buyers, according to the Rawson Property Group.
The South African Reserve Bank’s Monetary Policy Committee (MPC) reduced the repo rate by 25 basis points, bringing the prime rate to 11%. Real estate service Seeff Property Group had called for a 50 bps reduction for it to have any major significance for South Africans.
While the 25bps was hailed as good news by all major property heads, for aspirant home buyers and those with existing mortgages, the truth is it won’t make a dent.
Many consumers are just getting by, not having had a salary increase in years, while other costs are escalating. And in South Africa, hailed as having one of the highest interest rates in the world, it is still almost impossible for some to get on the property ladder.
Once they are property owners, however, a small saving by interest rate cuts won’t necessarily go back into a bond.
Instead the extra savings will go into other necessities such as food, transport, children’s clothes, school fees... and escalating municipal costs and rates. Added to that Eskom’s tariff increase for the year of 12.7%, won’t leave much to line the pockets.
In fact, the current 25 bps cut is not material, delivering a saving of only about R170 on the instalment of a R1 million 20-year home loan, says Renier Kriek, managing director at Sentinel Homes. On a bond of R1.5 that jumps to R256.
Lew Geffen Sotheby’s International Realty CEO Yael Geffen agrees that the interest rate decrease is so minimal “it is unlikely to significantly affect consumer behaviour or financial well-being”.
Kriek said however, “when considering that this is the third 25 bps cut since the cutting cycle began, homeowners have seen a total of about R510 in cuts on a R1 million 20-year home loan”.
Sentinel Homes said on a R1-million 20-year home loan, the cumulative savings due to rate cuts now just about pays the municipal rates account.
Property owners face huge challenges including unsustainable increase in municipal charges, escalating property rates, decaying infrastructure worsened by crime and sabotage, and the persistent water shortages and energy crisis.
These ongoing issues put a strain on the financial viability of property owners, SAPOA CEO Neil Gopal said earlier this week.
Geffen says a 12.7% increase in electricity costs would “directly raise utility bills for households. This could strain budgets, especially for low- and middle-income families who spend a larger proportion of their income on essential utilities”.
Stats SA recently also said households allocated 75,6% of their total household spending towards four main areas in 2023: housing and utilities; food and non-alcoholic beverages; transport, and insurance and financial services.
In an interview with Independent Media Property, David Jacobs who is the Gauteng regional sales manager Rawson Properties said the high interest rates and inflation in 2024 likely strained affordability for buyers, especially first-time homeowners.
“There is a high demand for affordable housing and it would be great to see property developers creating more affordable and sustainable housing solutions for the majority of the population.
“Property developers/property industry leaders can partner with the government to collaborate on housing projects and tap into the opportunities for urban renewal initiatives,” Jacobs said.
Tsekiso Machike, the spokesman for Human Settlements Minister Thembi Simelane, recently told Independent Media Property that the department (DHS) affirms that Government Business Partnerships remain crucial in achieving the shared ambition of significantly growing the economy in the country.
“The focus for 2025 is on accelerating the crucial reforms, operational improvements and upscaling the delivery of houses through various interventions in the human settlements sector. The full implementation of these interventions, in addition to the reforms already underway through DDM (District Development Model) and Stakeholder Partnerships, have the potential to lift the housing delivery paradigm,” Machike said.
Rawson Property Group said this and further interest rate cuts would contribute towards opening up the economy and providing a much-needed boost for consumer confidence. “With interest rates stabilising and affordable lending rates, opportunities arise for positive growth in the mid to lower property range,” Jacobs said.
Jacobs added that buyers with deposits and prequalification will be well-positioned to benefit from this type of environment.
The company added that even South African banks were also offering competitive lending rates in an attempt to create even more opportunities for property buyers.
Jacobs said that this year, he anticipated stabilisation of the property market rather than a dramatic boom.
He said for 2025-the market will steady, with pricing structures normalising.
“Some of the risks I anticipate would be related to external factors like global geopolitical tensions and the continuation and the impact of the Russia/Ukraine war on things like global supply chains, food production, and fuel prices.
“These can inevitably put upward pressure on inflation which could have an impact on the stabilisation of the interest rate and the outcome will be that affordability will once again be impacted. So it is very important for buyers to know their affordability.”
He advised buyers to do their research and get prequalified. “Prequalification helps buyers improve their chances of having an offer accepted, it also provides an opportunity to prime their financial profile for preferential bank lending rates.
“Research the property you would love to buy, evaluate not just the property but also the area’s infrastructure and municipal support. The long-term value lies in well-serviced locations.”
He added that FLISP (Finance Linked Individual Subsidy Programme) a financial and subsidy assistance for a first-time buyer or new homeowners earning a low to mid range salary, should be a more prominent topic so the public is educated about it so that they can utilise this subsidy for the purchase of their home.
The Rawson Property Group said they thought the key drivers impacting or influencing the property market in 2025 will definitely be economic growth and they were hoping for a more upbeat economy to help boost consumer confidence.
However, they added that it is also important for consumers to prepare for potential economic scenarios (e.g., rate hikes or tax changes) to remain resilient in uncertain times. “The interest rate environment influences the affordability of a property. Lower rates will make property ownership more appealing in 2025 and finally the demand and affordability of buyers.”
The company said strategic financial planning could ensure buyers entering the market can comfortably manage repayments while achieving their financial goals. That is why it becomes very important for a buyer/ first-time buyer to get prequalified, borrow cautiously, and to not stretch their budget to the limit, it concluded.
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