The head of the South African Reserve Bank (SARB), Lesetja Kganyago, is expected to announce the interest rate decision for July shortly after 3:00 PM on Thursday. Economists are divided on the direction of this decision. Banks such as America, Goldman Sachs, and Nedbank are betting on a rate hike, while Investec and PSG Financial Services predict that the Monetary Policy Committee (MPC) will maintain the current interest rate.
The main pressure factor is the increase in the repo rate by 25 basis points in May to 7.00%, which led to an increase in the prime lending rate to 10.50%. This increase has most significantly affected the primary housing market, where housing affordability and borrowing capacity directly depend on interest rates.
As a result, the South African property market has effectively split into two segments. Keegan Stein, founder of Forbes Global Properties for South Africa, notes that the elite segment behaves differently.
According to Stein, clients in the upper tier of the market are predominantly wealthy local and international buyers whose decisions are less dependent on the change in the repo rate in a specific month, and much more on the quality and rarity of the asset being acquired. He adds that some ultra-premium buyers view uncertainty as an opportunity to purchase, especially if the asset is sufficiently rare.
On the Atlantic coast, premium homes are selling for approximately 170,000 rand per square meter. Forbes Global Properties states that at this level, South Africa appears cheaper than Monaco, London, and New York.
Rene Munsami, chairman of the National Debt Advisory Association, told IOL that buyers may receive approval for smaller loan amounts, and existing homeowners are facing higher payments. Meanwhile, developers are operating amid declining demand and rising financing costs.
Munsami warned that for homeowners who were already under financial strain, even a small rate increase could be the deciding factor between maintaining payments, falling into arrears, and potential over-indebtedness.
The difficulty of the situation is compounded by the inflationary backdrop. According to Statistics South Africa, annual consumer inflation rose to 5.0% in June from 4.5% in May, marking the highest figure since June 2024. Transport costs contributed significantly to this. Annual transport inflation accelerated to 12.7%, with fuel prices increasing by 34.3%, diesel by 50.8%, and petrol by 31.7% over the year, according to the same report.
Ezra Rasetehe, president and CEO of investRand, told IOL that floating-rate bondholders immediately felt the rate hike in May through increased monthly payments, while first-time homebuyers working with limited funds might see less impact.
Thus, cash-rich buyers are seeking scarcity, while bondholders are experiencing anxiety. If SARB raises the rate again, average-priced segment show homes may simply become quieter before they become cheaper.
