a day ago
How lower interest rates could boost house prices in South Africa
The depressed state of new residential building plans passed in most of the country's larger municipalities is likely to lead to a meaningful recovery of house prices as soon as demand recovers on the back of lower interest rates.
Responding to an Independent Media Property enquiry, economist Dr Roelof Botha said although the residential property sector has welcomed the latest rate cut, the prime overdraft rate needs to be reduced by at least another 125 basis points for a sustained recovery.
'Hopefully, the Monetary Policy Committee (MPC) will become more aware of South Africa's most pressing economic policy objective, namely, to stimulate growth and employment creation,' Botha said.
He said that in order to shed some light on what may be expected at the July MPC meeting, it is useful to reflect on the sterling performance of the rand.
'In its regular monetary policy statements, the MPC invariably addresses the issue of currency weakness, which leads to higher rand-denominated imports and adds to inflationary pressures - both directly and indirectly via the higher cost of intermediary inputs in manufacturing and other industries.'
Botha said the news on this front is exceptionally good. With both the nominal and real exchange rates of the rand exhibiting strength, he said it is clear that domestic inflation is not being threatened by currency weakness, which should lead to further interest rate cuts in 2025.
Botha said that between the end of 2019 and the first quarter of 2022, average home prices were rising at a marginally higher rate than building costs. He said parity in the annualised rate of change in the construction input price index (CIPI) and the BetterBond home price index was achieved in the second quarter of 2022, due to the negative effect of record high interest rates on the residential property market.
'Since then, the trend has been reversed, with both the CIPI and the BetterBond home price index increasing at lower rates than the consumer price index (CPI). At the end of the first quarter of 2025, the YOY increase in house prices was marginally negative, with the CIPI increasing by merely 1.5%, which is negative in real terms.'
