The local property market will get a boost after the South African Reserve Bank (SARB) announced that the interest rate will be slashed by 25 basis points. Furthermore, the repo rate will now stand at 6.5% and the prime lending rate of banks shifts to 10%.
The strengthening rand means that inflation dropped to 4% in February 2018. This resulted in rating agency Moody’s keeping South Africa’s credit rating at investment grade (one place above junk status), hinting at a stable economic future for the time being.
Economists and experts believe that the interest rate is likely to stay the same for the remainder of 2018 – a welcome prospect for the South African property sector. The new political leadership has brought more economic stability and renewed interest from potential investors and businesses.
The interest rate cut will improve cash flow for households and negate some of the effects of the increased VAT rate that has now come into effect. Overall, the time is looking right for potential buyers to enter the property market. On the other hand, sellers will need to manage their price expectations and opt for a conservative sale price.
The full effects of this rate cut will only be felt after some time. The VAT increase and added tax burden on citizens through increased fuel levies, electricity and water tariffs will take some getting used to before the interest rate cut can be appreciated. The interest rate cut also presents a great opportunity to start saving for future investments or for putting more money aside for bond repayments.
The effect of the rate cut equates to a decrease of R170 per month on a one million rand bond over 20 years. Property investors are looking forward to a growth in the sector after 2017’s flat market growth. As consumer and business confidence grows this year, so too will the residential property market.
Find out how the VAT increase will affect the property market.
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