Engel & Völkers Licence Partner South Africa > Blog > What affect will this latest interest rate cut have on the economy and the property market?

What affect will this latest interest rate cut have on the economy and the property market?

The 100 basis point decrease in the repo rate on the 14th of April came as pleasant surprise to all consumers and to the economy of South Africa. It shows the intention of the Government and the Reserve Bank to assist consumers and protect the fragile economy of South Africa in the current circumstances. Good leadership together with a will to make the hard decisions is what will get South Africa through. The question is, what affect will this latest interest rate cut have on the economy and especially the property market?

During any time of economic stress the opportunities for investors are considerable. “According to the April 2020 FNB Property Barometer, going into the lockdown our y-o-y mortgage approvals slowed to 2.8%, last seen in May 2011. Volumes down some 40% over the same period. Add the lockdown and a ratings downgrade into the mix and you have the perfect storm - perfect opportunity for investors and buyers that is” says Grant Wheeler from EVFinance. “Particularly buyers and investors with foreign currency to bring in. Over the lockdown period alone each USD gets the investor/buyer 25% more than before the lockdown”, Grant concludes.

For the First time and general home buyers with the repo rate been cut to a record low of 4,25%, which has brought the prime lending rate down to 7.75%, and indications are, looking at global and local markets, that the interest rates are going to be at these levels for the foreseeable future.

“For new home buyers wanting to climb onto the property ladder and the wealth that it creates, this could not be better time. For those families who have outgrown their current properties and are now looking at upgrading their lifestyles, this is the cheapest it has been in decades when taking into account the interest rate together with property prices” says Craig Hutchison from Engel & Völkers Southern Africa. “It’s possible to purchase large family homes in reputable estates in Gauteng at under R10 000 a square meter for the home including stand value”, concludes Craig .

Coming out of the lockdown will surely mean the economies of the world will rebound. Some quicker and more vigorously than others. The South African market is expected to have a slower recovery due to the structural challenges that we had going into the lockdown, but it will recover. Again a slower recovery will benefit foreign investors as our exchange rate will linger on the weaker side for longer allowing for capital gains to offset the potential strengthening of the rand.

This may well be a once in a lifetime “black swan event”, if you are a buyer or an investor the opportunities are out there.

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