Lower interest rates needed to boost our economy

How's the property market doing? Most leading estate agents get asked this question a few times a day. We know that some key fundamental economic indicators drive a real estate market, with interest rates, disposable income to debt ratio and confidence at the top of the list.

While we know that consumer confidence plunged to a multi-year low in the first quarter of 2025, to -20 from -6 in the prior quarter, which translated directly into fewer property transactions over the period, the latest FNB property report does reveal some good news. The FNB Home Price Index indicated growth of 2,2% (y-on-y) in April 2025 - the highest growth for over two years. Demand and supply drive prices.

This indicates a possible recovery in demand. If supply is constrained, you can have a scenario of increasing prices even with similar demand. A destination such as the V&A Waterfront Apartments is a great example, with demand almost always outstripping the constrained supply. For most of our areas in KZN, supply keeps growing, especially on the North Coast as new mega-estates come on stream.

There is a strong economic case to be made that our interest rates should be significantly lower, given that CPI inflation over the last three months has been recorded as being below 3% and our PPI inflation being 0,5% showing little to no upward pressure from producer prices.

South Africa's real interest rates are very high at 7,25%, which places it at the 6th highest real interest rate within the global G20 group. Good examples of strong, vibrant economies show real interest rates of 4,5% (USA), 4,25% (UK), 3,85% (Australia), 3% (China) and 2,15% (Euro Area).

Imagine what a 3% drop in our real interest rate would do for economic growth and property demand. Countries we don't want to compare ourselves to in any way within this G20 group are Brazil (15% real rates), Russia (20%), Argentina (29%) and Turkey (46%), which has the highest.

The damage to economic growth that high interest rates impose is well documented. For property practitioners, the impact is experienced first-hand as it raises the cost of home ownership and restricts demand. For property developers, high interest rates can be especially detrimental.

For those who were around in August 1998 when our interest rates peaked at 25,5% you will remember how the property development sector came to a grinding halt - not a single brick was being laid. Fortunately, South Africans have not had to deal with those historically high rates since then.

With the risk of a longer and larger-scale Middle East war being diverted for now and oil supply being unaffected at this stage, with Brent Crude Oil pricing around US$69 our North Coast property market can be expected to improve over the second half of 2025.