With changes on the political front, a strengthening rand and lower inflation, we could see a welcome cut in interest rates this year.
At the release of the PayProp Rental Index Annual Review of 2017 it was suggested that the lending rate could fall in 2018. Johette Smuts, head of data and analytics at PayProp, noted: “Economists are talking about a possible rate cut, which will boost not just the economy but also the rental and the housing market.”
Paul Stevens, CEO of Just Property, shares his his thoughts on the possibility.
1.How likely is a rate cut in your opinion?
Stevens: Given the change on the political front, I do think that a large degree of confidence has been restored. While there are still many uncertainties, this sense of hope will slowly start to affect our economic situation. We have already seen the rand strengthen over the past weeks and at the time of writing it is currently trading at the lowest it’s been for a couple of years. With the stabilising and strengthening of the rand our rate of inflation should start to decline, and this in turn will hopefully lead to a rate cut. The next Monetary Policy Committee meeting is late in March but I would think that any cuts are only likely from the middle of the year. If they come, the cuts will probably be conservative – around 25 basis points and I do not anticipate much more than 50 basis points during the course of the year.
2. How soon would a cut in interest rates affect the housing market?
Stevens: Rate cuts take time to filter through to the housing market but if they’re linked with more political stability and lower inflation, there is no doubt of a positive effect on the property market.
3. Should buyers fix the interest rate on their bonds if the prime lending rate does drop?
Stevens: When rates are on a downward cycle, it is easier to fix your interest rate than in an upward cycle. Whether to fix or not depends on one’s appetite for risk – if you want to know what you are going to be paying on your home loan every month so that you can budget accordingly, fixing is a good idea. When one is relying on a variable rate, you could be paying more or less depending on which way rates go.
4. How does a rate cut boost the rental market?
Stevens: The rate cut will affect the rental market in that, as mentioned above, a drop in inflation can ease economic pressure on everyone including tenants. Rental growth over the past few year has been very weak across the country but with a possible rate cut this could start to rise.
5. Will a new President provide sufficient impetus to get the wait-and-see cohort into the property market?
Stevens: Many potential buyers and sellers have indeed been sitting on the fence due to political uncertainty, and from an affordability point of view. The new presidency has certainly brought some confidence back and I do feel that many people who were previously influenced by the uncertainty around South Africa’s future will now enter the market. It is a great time for buyers – the possible easing of inflation, lowered interest rates and more confidence in the political landscape all play into their hands. It is a great time to enter the property market.