Recent announcements from two of South Africa’s biggest economic institutions could shape the rental market for the rest of 2025.
The South African Reserve Bank (SARB) made its second interest rate cut of the year in May, bringing the prime lending rate to 10.75%. That will ease the pressure of debt repayments on tenants. It will also help property investors: repayments on a bond of R1 million at the prime rate will fall by R170 a month.
Property professionals welcomed the cut, saying that it will boost the market. But it could be the last one for a while.
According to the Monetary Policy Committee’s (MPC) May statement, SARB and the National Treasury are preparing to lower the inflation target to 3%, instead of its current 3-6% range. According to the MPC, this will lead to more stable inflation and growth in the long term at the expense of growth in the short term. However, stricter inflation targets will give the bank less space to reduce interest rates.
It will also have a big effect on the sales market. Keeping interest rates higher for longer to subdue spikes in inflation will make it more difficult for tenants to become first-time buyers.
The MPC also downgraded its growth forecast for 2025 to 1.2%, pointing to poor performance in key sectors at home and a slowdown in growth internationally.
Budget to reduce tenant spending power
The good news for tenants is that the proposed increase in the VAT rate was removed from the final Budget last month, avoiding a significant increase in monthly costs. However, at least some of that will be clawed back by increases in fuel taxes – 16 cents per litre for petrol and 15 cents for diesel. Income tax brackets also haven’t been adjusted, meaning more people will be pushed into higher bands by inflationary salary adjustments.
But like the MPC, the National Treasury also downgraded its growth forecast for 2025 – although to a slightly more optimistic 1.4%.
Weak economic growth and reductions in tenant spending power this year could make it harder for landlords to increase rents. However, with the rental market running hot, property professionals can still be optimistic about the rest of 2025.
