With South Africa’s inflation rate below the lower limit of the inflation target at 2.9%, and local inflationary expectations remaining well-anchored, it was expected that the Monetary Policy Committee would keep the repo rate unchanged.
This means that the prime lending rate remains steady at a near 50-year low of 7% with indications that it is unlikely to dip further, so for potential homeowners, it is a reminder that if you are thinking of buying a home, now would be a good time to secure an attractive interest rate.
Economists in the main argued that interest rates are currently at the correct level given the prevailing economic environment. From a residential property perspective, last year’s aggressive rate cuts have fuelled home buying to a large degree, with 2020 surprising many by showing robust home-buying activity. In fact, according to FNB, 2020 registered the highest volume of mortgage approvals in South Africa in more than a decade.
While the economy is expected to rebound this year, the robust growth rate forecast will largely be the result of comparisons to last year’s exceptionally weak levels. Furthermore, President Biden’s massive US$1.9 trillion stimulus package, coupled with the successful roll-out of the vaccines in several countries, looks set to boost global economic growth prospects, raising concerns potentially around renewed international inflationary pressures and ultimately, higher global interest rates.
South Africa can ill afford to continue cutting already historically low interest rates at a time when investors are anticipating that global interest rates may soon be rising. “However, views on when the SA Reserve Bank will ultimately begin to raise local interest rates are varied, with many suggesting that they will remain unchanged until next year (2022), while some believe rates may possibly begin rising towards the end of this year (2021). One thing we do know is that in unusually uncertain times such as these, forecasting is far from an exact science.
In fact, despite the uncertainties surrounding the pandemic, the market for residential property has so far proven to be one of the country’s more resilient sectors, experiencing an earlier than expected rebound with momentum continuing in 2021, underpinned by the 50-year low interest rates. Combined with generally more realistic pricing, a ripple effect is still filtering through the market, placing upward pressure on demand through the various price bands.