A predictable rate environment helps sustain demand, supports gradual house price growth and maintains momentum in resilient segments such as first-time buyer homes and well-located residential properties.
Image: Dayvison de Oliveira Silva/Pexels.
With the news of above-inflation electricity charges about to take effect and fuel prices set to increase, consumers’ disposable income will come under pressure no matter what the Reserve Bank decides in the March Monetary Policy Committee’s (MPC) decision.
The South African Reserve Bank’s governor, Lesetja Kganyago, will deliver the Monetary Policy Committee’s second interest rate decision for this year on Thursday afternoon.
“It is necessary to reflect that the interest rate cycle will turn eventually, and gentle changes will allow consumers to adjust their personal budgets more easily, reducing the impact on rent payments,” Dickens says.
According to Dickens, the interest rate decision has an immediate impact on tenants’ disposable income as the cost of repayments to credit providers increases or decreases.
When interest rates are increased, PayProp notes there is usually a lagging effect of an increase in the number of tenants falling into arrears and the value of arrears, says Michelle Dickens, the Commercial Director at PayProp South Africa.
She says that lease agreements are usually twelve months, so while tenants may wish to find more affordable homes, they will have to finish their long-term leases first, with tighter personal budgets to manage in the meantime.
“Over the coming months, property professionals will need to monitor tenant payment behaviour for rises in arrears and consider affordability checks for upcoming lease renewals, and are also likely to see demand shift towards lower-priced properties.”
PayProp says some global economic conditions are out of the control of the Reserve Bank in making rate decisions, and the property sector and South African consumers are forced to contend with events like the sharp increase in the cost of fuel.
But the sector has already weathered bigger shocks, like the Covid-19 pandemic.
Property professionals’ resilience isn’t in question; they can access tools to maintain open communication with landlords and tenants, assess affordability carefully when placing tenants, identify and chase late rental payments, and price properties in line with local market data.
Given the global backdrop of rising oil prices, geopolitical uncertainty and potential imported inflation pressures, alongside local conditions where inflation is near target but facing possible upward risks, the ideal decision would be to keep the repo rate unchanged, says Raeesa Kader, the academic programme leader at the School of Accounting, Finance and Tax of the Management College of Southern Africa.
Kader says while a rate cut would provide short-term relief, it could prove premature if inflation pressures intensify in the coming months.
“Maintaining rates for now would reinforce policy credibility and create space for more sustainable easing later, once global uncertainties become clearer.
The academic leader says that for the property sector, this approach provides stability and planning certainty for both buyers and developers.
“A predictable rate environment helps sustain demand, supports gradual house price growth and maintains momentum in resilient segments such as first-time buyer homes and well-located residential properties.”
However, even in a stable global environment, Kader says SA’s property sector was never going to rely on the interest rate cycle alone for growth.
The academic says the sector will need to continue building its own resilience, and there are encouraging signs that this is already happening.
“Energy resilience, for example, has increasingly become a competitive advantage. Developers and property owners who have invested in solar power, battery storage and energy-efficient building standards are better positioned to manage rising utility costs and operational risks.
"As a result, energy efficiency is quickly becoming a baseline expectation for new developments.”
Furthermore, Kader says the sector should continue focusing on resilient demand segments such as affordable housing, first-time buyer properties and student accommodation, where underlying demand remains strong.
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