Coalition government boosts housing market outlook | Everything Property
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Coalition government boosts housing market outlook

Housing market Coalition government boosts housing market outlook

Stability and economic growth could encourage the South African Reserve Bank (SARB) to start cutting interest rates.

With re-elected President Cyril Ramaphosa delivering the Opening of Parliament Address last week, South Africa’s new government of national unity has investors and property professionals looking forward to a period of greater stability and stronger housing and rental prices, this is according to PayProp, who share more below.

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On 14 June, 2024, South Africa’s political leaders agreed to the broad alliance which saw asset prices grow sharply as well as strengthening of the Rand. While housing prices tend to be slower to react to the headlines, many estate agents believe they should follow suit.

According to John Herbst, CEO of Fine & Country Sub-Saharan Africa, a stronger currency goes hand in hand with stronger house price growth. But that could in turn reduce foreign investment in South African property as overseas buyers get less for their money.

Indeed, we may already be seeing signs of a recovery, as the Lightstone Housing Index for May 2024 shows that year-on-year house price inflation reached 3.22%. That’s still sluggish, but growth has now accelerated in each of the past four months. Meanwhile, monthly house price growth rose to 0.42%, close to the peak it reached in late 2020.

Interest rates to fall?

Stability and economic growth could encourage the South African Reserve Bank (SARB) to start cutting interest rates. The Monetary Policy Committee’s (MPC) last statement in May was the most positive for some time despite the decision to hold rates steady.

But property experts say homeowners shouldn’t get their hopes up for a rate cut at after MPC meeting. Inflation remained steady at 5.2% in April and May, within the right range but still adrift of the SARB’s target of 4.5%. However, they are more hopeful for a 0.25% interest rate cut at the meeting in September. A fall in bond interest rates could encourage more buyers back to the housing market after a prolonged period of low activity.

What about rents?

The PayProp Rental Index for Q1 2024 showed that rental growth, while still in effect, fell for the first time since 2021, to 3.8% from 4.6% in the previous quarter. An uptick in economic growth could help lift rental growth again, but for now, high inflation and interest rates have reduced tenant affordability and limited rent increases.

Those pressures are likely to persist. Inflation isn’t expected to reach its 4.5% target until Q2 2025. On the other hand, high interest rates are helping to shore up rental prices as they deter first time buyers, and it is still possible that rental growth could rally.

The next indication of where rents are going will be the upcoming PayProp Rental Index for Q2 2024. Based on real rental transactions, it is relied on by property professionals across South Africa to track national and provincial rental growth, arrears trends and more.

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