Repo cut rate does little to save economic concerns

Jan 17, 2020 9:50:54 PM

The South African Reserve Bank's monetary policy committee announced yesterday that it has voted to reduce the repo rate from 6.5% to 6.25%. Therefore the prime rate will fall to 9.75%. Although this will certainly alleviate some pressures for those in debt we are a long way from saving a vulnerable economy.

 This ominous state of affairs was supported by the Reserve Bank, who explained that the GDP growth outcome for the third quarter confirmed that the economy remains weak and vulnerable to idiosyncratic shocks and poor sectoral performances. While growth in the fourth quarter is expected to have picked up, electricity supply constraints
 will likely keep economic activity muted in the near term.
 
 Both public and private sector are feeling the intensity of an economy under serious pressure. This undoubtedly influences consumer confidence and negatively affects the purchasing behavioural patterns in the real estate industry. The affordable to middle-income property market remains buoyant and activity continues. However, the luxury and investment property market has slowed down significantly in some regions. This is a concern as it showcases the lack of desire by regular investors to increase buying activity and look past the glaring risks. This sentiment will translate into other sectors of the real estate market, especially first-time buyers.

 A lot needs to be done to ensure growth is accompanied by announcements like interest rate cuts. We're still seeing rising costs for the man on the street snowballing and pushing South Africans ever closer to a price pinch.

 As we look to the coming months and predict quarterly growth, things don't get any better. The bleak future of the economy in the coming year is underpinned by ailing infrastructure in the public sector that is putting serious strain on the budget and this has long term far-reaching knock-on effects. Attracting investment that helps South Africa reduce its unemployment rate and catapult technology advancements into the fore is incredibly necessary.

However, taking all of this into consideration property remains the most solid long term investment. Economic fluctuations occur at times especially in developing regions and real estate consistently provides the best return on investment, especially in tough economic times. Although buyers are seemingly reducing their activity, ironically this is an amazing time for buyers to get involved. Value remains the same but property prices are reduced. This opportunity will not only stimulate growth in the market but buyers are able to get a lot more bang for their buck.

Statement by
Richard Gray
CEO Harcourts South Africa

Topics: Richard Gray, Harcourts South Africa, Economy, repo rate, Market Value