_{Good news for South African homeowners}

_{Bianke Neethling
^{•
10 August 2024}}

^{_{Interest rate cuts projected for later this year are set to be a boon for South Africans looking to buy houses and local homeowners.}}

^{_{This is according to Real Estate Services CEO Giovanni Gaggia, who told Daily Investor that the anticipated interest rate cuts later this year will positively impact South Africa’s property market.}}

^{_{“While the recent rise in interest rates has created challenges for both buyers and sellers, the upcoming cuts could stimulate renewed interest and activity in the market,” he said.}}

^{_{South Africa’s property market has experienced severe challenges over the past few years – from the Covid-19 pandemic that devastated the local office property market to the highest interest rates seen in 15 years.}}

^{_{The South African Reserve Bank (SARB) has been in a hiking cycle since November 2021, increasing rates by a cumulative 475 basis points. The repo rate is 8.25%, and the prime lending rate is 11.75%.}}

^{_{This has placed South African consumers under significant pressure and dampened the local property market.}}

^{_{However, the tide is set to turn soon, with many economists and industry experts expecting interest rate cuts later this year.}}

^{_{Experts generally agree that the Monetary Policy Committee’s next meeting in September will mark the start of the cutting cycle and expect two shallow cuts—25 basis points each—this year.}}

^{_{Gaggia said lower interest rates will make it more affordable for prospective buyers to obtain mortgages, potentially leading to increased demand for properties.}}

^{_{This, in turn, could help stabilise or even increase property values, which is good news for homeowners and investors alike.}}

^{_{He noted that during this period of high interest rates, South Africa’s rental market has boomed, and renting has become increasingly popular in recent months due to affordability concerns and economic uncertainty.}}

^{_{“However, as interest rates decrease and buying becomes more accessible, we may see a shift back towards property ownership,” he said.}}

^{_{“This isn’t to say that the rental market will disappear, but rather that it may become less dominant as more people consider buying their own homes.”}}

^{_{Overall, Gaggia said he is optimistic about the future of South Africa’s property market.}}

^{_{While challenges remain, the anticipated interest rate cuts present a significant opportunity for growth and recovery.}}

^{_{“By adapting to the changing landscape and leveraging the potential benefits of lower interest rates, both buyers and sellers can position themselves for success in the coming months,” he said.}}

^{_{He also emphasised the importance of working with experienced real estate professionals during this transitional period.}}

^{_{South African Reserve Bank Governor Lesetja Kganyago}}

^{_{Gaggia’s optimism has been mirrored by several other industry roleplayers, who believe the local property market is set for significant growth in the coming months.}}

^{_{Stanlib property analyst Nicolas Lyle said earlier this year that global and local listed property companies are set to boom in the coming years as central banks begin cutting interest rates globally and demand for office and living space picks up.}}

^{_{In a research note, Lyle wrote that listed property has shown strong returns over the past year and is likely to continue to perform well.}}

^{_{He said property globally was hit by a one-two punch of lower occupancy and higher rates due to the fallout of the Covid-19 pandemic and governments’ subsequent responses.}}

^{_{This led to one of the most challenging periods for property stocks in decades but also created an opportunity to invest in listed property companies at one of the cheapest entry points in history.}}

^{_{Investors who held their investments in property stocks from the beginning of 2019 to the end of 2023 were rewarded with a total rand return of 29%.}}

^{_{Lyle recommends that investors increase their exposure to real estate investment trusts (REITs) worldwide, as they are set to grow further and outperform other asset classes in the next few years.}}

^{_{“Even if the economy slows but avoids a deep recession, we expect global REITs and listed property stocks to deliver positive returns,” Lyle said.}}

^{_{“Most of them have investment grade credit status, reflecting their high-calibre management teams, high-quality portfolios, strong interest cover and relatively low leverage levels.”}}

^{_{Lyle said Stanlib expects global property to deliver a total return of 10% in dollar terms in 2024, driven by good dividend yields and growth in free cash flow.}}

^{_{“Falling interest rates would add upside to our base case, whereas signals of an accelerating recession, such as a sharp rise in unemployment, would cool our enthusiasm.”}}