Rate Cuts and Rising Confidence
Galetti Corporate Real Estate
Galetti Corporate Real Estate is one of South Africa’s leading commercial and industrial real estate consultancies.
There is a lot of talk (and optimism) around an interest rate cut of around 25 basis points on January 30, a small yet significant change that will accelerate economic growth in 2025. This rate cut will bring the total reduction to 75 basis points over a period of less than six months.?
The market sentiment is largely positive with prominent local CEOs from Nedbank , MTN , Pam Golding Properties and Woolworths expressing an optimistic view on the country’s prospects in 2025, citing it as a year of ‘economic stability and recovery’.
Rate Cuts Pivotal to GDP Growth
The impact of interest rates transcends local home and businessowners as a key contributor to the country’s economic growth outlook, which is currently tracking at 1.5% for 2025. This year’s GDP forecast, however, may be underestimated.
We recently hosted a conversation with Chief Investment Strategist at Investec , Christopher Holdsworth who highlighted further potential for growth, largely driven by improved investor confidence.?
In the discussion, Christopher Holdsworth highlighted 1999 to 2003 as the years in which the country experienced a growth rate of 3.5% under the Thabo Mbeki administration.
“This was the only administration where the country saw a combination of flat to weak commodity prices globally but business prices picking up, and much the same can be said for South Africa under today’s GNU administration.”
How a 75 Basis Point Rate Cut Could Transform Our Sector
A reduction in interest rates lowers the cost of borrowing - a boon for property developers and investors.
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Lower interest rates make alternative investments - such as bonds and savings accounts - less attractive due to reduced yields.
Interest rates and capitalisation rates (cap rates) share a strong connection. When interest rates are reduced, cap rates generally compress, resulting in higher property valuations.
The impact of a rate reduction (coupled with improved investor confidence) will generate higher demand for office, industrial, and retail properties.
While the Western Cape is undoubtedly the blueprint for economic growth in the country, we have noted an uptick in demand for commercial property in Umhlanga. When it comes to Gauteng, more public-private partnerships are needed to further strengthen the region which is long overdue for an overhaul.
Looking ahead, the market anticipates one further rate cut for the year ahead, bringing the total rate reduction to 100 basis points. This will aid the momentum that is currently building and will be a pivotal turning point for the market.