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Interest rate cuts set to revive SA’s beaten housing market

Interest rate cuts set to revive SA’s beaten housing market
Ray Mahlaka
By Ray Mahlaka
29 Sep 2024
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Several industry players believe the local residential housing market is poised for a rebound 

South Africa’s R6.8-trillion housing market might start showing signs of life after languishing for years, thanks to the Reserve Bank’s recent decision to cut interest rates for the first time in four years.

Residential property sales have remained subdued after initially soaring in 2020 in response to the bank cutting interest rates to near 50-year lows to help households through the Covid pandemic.

The number of properties sold yearly rose to 350,983 in 2021, only to drop sharply to 207,744 so far in 2024. This plunge is a result of the bank taking a higher-for-longer approach to interest rates since November 2021 to fight inflation, making it difficult for cash-strapped consumers to meet their mortgage repayments or take up new debt to finance new property purchases.

In addition to the prime lending rate increasing from 7% to 11.75%, consumers have been hit by soaring food, petrol and electricity prices. Many have defaulted on their mortgage repayments.

Standard Bank, the country’s largest home loan provider, has estimated that the big four banks have about R98-billion in non-performing home loans – referring to payments in arrears for more than three months. This is more than double the R46-billion of nonperforming home loans recorded during the third quarter of 2021, just before the Reserve Bank started its hiking cycle.

Existing homeowners across SA have felt the pain, as their homes have become investment duds.

According to data from FNB, house price growth has languished to 16-year lows. The bank’s House Price Index, which tracks housing trends from property sales it finances, has registered paltry growth of less than 1% since mid-2023, down from a peak of 5.1% in April 2021. The last time the index was below 1% was in 2008, just after the global financial crisis.

Since 2023, the inflation rate has grown faster than house price growth, meaning that existing homeowners have barely made money from their homes or experienced capital appreciation. However, some provinces and specific areas in the Western Cape, Limpopo, Free State, Eastern Cape, and eastern and southern parts of Gauteng are showing good house price growth. 

Read more: Home in on a bargain — areas in SA’s property market that still offer value for money, growth

Outlook for the housing market


The big question is whether the local residential property market and housing activity are poised for a rebound considering that the Reserve Bank recently delivered a 0.25% interest rate cut, bringing the prime lending rate down to 11.5%.

Several industry players think so, as they have pencilled in another 0.25% cut at the bank’s November meeting.

Although the recent 0.25% cut is marginal, it is a welcome start to improving the financial health of existing and prospective homeowners. This rate cut reduces the monthly mortgage payments by R130 on a home loan of R750,000, R147 on one of R850,000, R173 on one of R1-million and R345 on a home loan of R2-million.

FNB economists Siphamandla Mkhwanazi and Koketso Mano are optimistic about the outlook for house-buying activity and house price growth in the coming years. However, a rebound will only happen if economic conditions improve and inflation continues on its downward trajectory over a sustained period, which would support a more aggressive move by the Reserve Bank to lower borrowing costs. “[This] could improve affordability for potential homebuyers, stimulate demand and support house price growth,” Mkhwanazi and Mano said.

The pair from FNB have maintained their predictions for national house price growth of 1% in 2024 and 2.6% in 2025, but they have upgraded their forecast for 2026 from 3.3% to 3.6%. The projected house price growth in 2026 is still below the expected inflation rate of 4.6%, indicating that a housing recovery will be a long, hard slog.

The good news


Competition among banks to attract customers is intense, especially first- and second-time homebuyers. Banks are softening deposit requirements on new home loans and offering competitive discounts to the prime lending rate.

Underscoring this are figures from mortgage originator ooba showing that commercial banks offered home loans at an average prime lending rate minus 0.57% during the second quarter of 2024, from prime minus 0.41% a year prior. Before the Covid pandemic, banks typically offered home loans at prime plus 2%.

Rhys Dyer, CEO of ooba, also points to a new phenomenon that might boost the housing market: the recently introduced two-pot retirement system. Early estimates point to between R20-billion and R100-billion that might be withdrawn early from pension savings in 2024/25. This will boost the economy and housing market, which might also bode well for future interest rate cuts. Dyer said some of the withdrawn funds could be used for discretionary spending, as consumers may use their windfall to pay down existing debt, including mortgage repayments.

Samuel Seeff, Seeff Property Group chair, supported Dyer’s views, saying one of the ways property could deliver good growth is by homeowners reducing their mortgage debt – paying it off faster and investing spare cash. “But it will take upwards of five to seven years before you even start making a dent,” said Seeff.

However, property is a long-term game and an investment into such an asset class depends on positive sentiment about the economy and country. After all, people won’t commit to a 20-year mortgage if they do not believe in the future.

The lack of Eskom blackouts for five months and the formation of a Government of National Unity (GNU) that has been well received by financial markets are likely to have a positive spinoff for sentiment and growth in the economy, which is needed to create more jobs and wealth, and boost demand for property.

“For the first time in many years, there is a sense that the outlook for the country is brighter,” said Seeff.

Andrew Golding, Pam Golding Properties CEO, is equally optimistic about the GNU, saying he anticipates “that any regions or districts which can be seen to have benefited from a change in governance since the May elections could potentially see a rebound in [house] prices and activity”. DM

Ray Mahlaka is a Business Maverick associate editor.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

You may write a letter to the DM168 editor at [email protected] sharing your views on this story. Letters will be curated, edited and considered for publication in our weekly newspaper on our readers’ views page.

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