Dr Andrew Golding, chief executive of the Pam Golding Property group, comments:
While the Monetary Policy Committee’s decision to keep the repo rate steady was disappointing yet unsurprising, it provides a measure of stability for households with existing mortgages and aspirant home buyers seeking credit, particularly in the face of surging fuel prices and increased municipal tariffs, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
“Currently, heightened geopolitical tensions and disruptions to global shipping routes are injecting some uncertainty into the economic outlook, with the duration of the disruptions emerging as the key risk factor for inflation, interest rates and South Africa’s housing market.
According to the Bureau for Economic Research (BER), three broad scenarios frame the potential impact. In a mild case, where disruptions are short-lived and shipping routes normalise quickly, the effect would likely be limited to a temporary spike in inflation. Economic growth may soften slightly and interest rate cuts could be delayed, but the broader recovery trajectory would remain intact, supporting ongoing activity in the housing market.
A more prolonged disruption, lasting several months, presents a more challenging outlook. Sustained higher fuel prices could push inflation towards 4%, prompting the South African Reserve Bank (SARB) to hold interest rates for longer. While this may weigh on global demand and local purchasing power, the market has shown resilience in similar conditions, underpinned by steady lending practices and sustained demand.
In a protracted scenario in which disruptions persist for six months or longer, the global economy would face a more significant shock. Inflation could rise more sharply, the rate-cutting cycle may be paused or potentially reversed, and growth could slow both globally and domestically. Even in this scenario, the property market’s long-term fundamentals, including ongoing urbanisation and lifestyle-driven demand, are expected to provide a degree of support. In this context, the duration of the disruption becomes more critical than the initial price spike.
Interest rate outlook
While the SARB is expected to keep the repo rate unchanged in the near term, rising fuel prices are set to place upward pressure on inflation. However, the Bank is likely to remain measured in its response, particularly given that the inflationary shock is externally driven and the subdued local growth environment reduces the likelihood of significant second-round price effects. This cautious approach should help to avoid unnecessary strain on consumers and support overall market stability. Should price increases begin to filter through into broader categories such as food and manufactured goods, policymakers may need to act, but any response is likely to be balanced.
The risk of stagflation - where rising prices coincide with slower growth - increases the longer the disruption persists. However, South Africa’s housing market has historically demonstrated an ability to adapt to changing economic conditions, supported by a well-capitalised banking sector and prudent lending criteria. Supply chain disruptions, particularly through key routes such as the Strait of Hormuz, could add to price pressures, but are unlikely to derail longer-term market fundamentals.
Housing market implications
A period of elevated inflation and interest rates may place some pressure on household finances, directly impacting housing affordability. First-time buyers, who are particularly sensitive to interest rate movements, may take a more measured approach, but remain an important driver of demand in the market.
Higher living costs, driven by fuel, transport and food, may also affect existing homeowners’ ability to service mortgages. Encouragingly, banks have continued to play a supportive role, underpinning the market with competitively priced loans and relatively strong approval rates, helping sustain transactional activity.
Market confidence - a key factor impacting sentiment in the residential property market - may soften in the short term amid heightened uncertainty. However, this environment can also create opportunities for well-positioned buyers to enter the market, particularly where sellers are more negotiable and pricing remains realistic and market-related.
Balancing factors and potential positives
Notwithstanding these headwinds, several supportive factors remain. If the SARB is able to delay, rather than reverse, its rate-cutting cycle, it would provide some relief to the market. A weaker rand could enhance South Africa’s appeal to foreign buyers, while continued investment in renewable energy may reduce long-term vulnerability to oil price shocks.
Shifting homebuyer behaviour is also creating new opportunities, with increased interest in more affordable regions boosting semigration, and demand rising for locations offering reduced commuting costs, including mixed-use developments and smaller towns. Others may opt for urban centres or convenient locations which offer ‘walkability’, or, where possible, elect to work from home - trends that would continue to support diverse segments of the market.
Housing outlook
Ultimately, the trajectory for both the economy and housing market hinges on how long the current disruption persists. A swift resolution could see the current shock remain a temporary setback, allowing positive momentum in the housing market to continue. Even in a more prolonged scenario, underlying demand, demographic trends and lifestyle shifts are expected to underpin market activity.
In the longer term, the disruptions experienced may also accelerate structural shifts in global energy dynamics and buyer preferences, creating new avenues for growth within South Africa’s property market.
Key imperatives for the housing market remain a need for stronger economic growth, rising employment creation, and low inflation and interest rates. While current events have introduced a degree of uncertainty, a resolution to the conflict and easing oil prices could see conditions stabilise, enabling the market to regain momentum and continue its recovery trajectory.
Speculation of possible negotiations between the US and Iran has prompted cautious optimism about a potential ceasefire, although Iran’s continued denials have tempered expectations. If an off-ramp is found and the situation de-escalates, the mild scenario becomes increasingly plausible, reducing upside risk to the benign inflation outlook and potentially allowing the Reserve Bank to resume its rate ‑ cutting cycle later in the year.”
