As anticipated, the Monetary Policy Committee (MPC) kept the repo rate on hold at its meeting this week.
While interest rates have already been reduced by 300 basis point for the year to date, to a near 50-year low of 3.5%, several analysts argued that there was in fact room for a further rate cut at this week’s MPC meeting.
A strengthening in the Rand since the September MPC meeting, coupled with a softer oil price, a continued easing in the inflation rate, persistently weak economic growth prospects and an accommodative global monetary policy stance, all supported the case for a further 25 basis point easing in rates.
However, those who felt that the MPC was more likely to leave interest rates unchanged noted that October’s Medium Term Budget Policy Statement (MTBPS) had highlighted South Africa’s slower pace of fiscal consolidation and resultant elevated fiscal risks – prompting the MPC to err on the side of caution.
Furthermore, the MPC has previously pointed out that the full impact of prior interest rates has yet to be felt – typically taking between 12 and 18 months to feed through the economy – and that a further 25 basis point rate cut would be unlikely to add any meaningful further stimulus. Indeed, the Reserve Bank Governor has said that the Bank has already done what it can to support growth and that it is now up to government to implement the long-delayed structural reforms to lift South Africa’s economic performance.
That said, what we are experiencing at present is a continued strong uptake in demand for residential property acquisitions around the country – particularly in the price band up to R3 million, with additional encouraging signs of increasing activity at the top end of the market.
While the real estate industry came to a virtual standstill during the months of the hard lockdown, the pent-up demand has surpassed expectations, and has now shifted into gear to what is hopefully translating into a sustainable ongoing momentum in the housing market.
On the back of a low interest rate environment, further fuelled by a keen appetite among young and first-time buyers – which is especially evident in the lower and middle sectors of the market, and coupled with generally more realistic pricing, a ripple effect is filtering through the market, placing upward pressure on demand through the various price bands.
The MPC has indicated that the repo rate will most likely remain unchanged at current levels until mid-2021, inching higher during the second half of 2021. While it remains to be seen how the country’s economic recovery gains traction, we believe that solid foundations and fundamentals remain in place for ongoing investment in the residential property market. This is especially so since, in addition to the usual reasons for movement in the marketplace, the lockdown has inadvertently created the rationale for a wave of new reasons for relocation and property acquisitions, from upsizing for additional space due to work from home scenarios to lifestyle moves to more appealing destinations further afield.
Comments by Dr Andrew Golding, chief executive of the Pam Golding Property group