SA Interest Rate Increase may be Speed Bump for Commercial Property Upturn

Posted on 8 February, 2014 by Jodee Redmond

The latest round of interest rate increases by the South African Reserve Bank (SARB) has proved to be a disappointment to the commercial property market. SARB has increased the repo rate by 50 basis points to 5.5 per cent, due to concerns over the inflation outlook.

SA-Interest-Rate-Increase-may-be-Speed-Bump-for-Commercial-Property-Upturn

Robin Lockhart-Ross, the Head of Risk at Nedbank Corporate Property Finance, commented that this move was a disappointment, not so much because of its impact on the servicing of existing loans or the viability of future projects, but more because of the effect it will have on confidence in the commercial property sector. It was doubly disappointing because it came in the wake of disappointing retail trade statistics for December.

He pointed out recently that the “stable and low short-term interest rates” that have been in place since the middle of 2012 have allowed the property industry to trade itself out of most of the problems encountered during the recession. They have also made it possible to plan forward with “some level of certainty and confidence.”

Retail property has generated the greatest demand over the past three years. During this time, several new shopping centres have either been developed or are under construction. These adverse signals, when taken with concerns over possible further rate hikes, could serve to slow down the retail property market.

The industrial sector has been in second place behind the retail sector. It has been mainly driven by logistics and warehouses. The office sector follows in third place.

In the short term, the impact of the rate change will be on the price of listed property stocks. These are inversely correlated to interest rates, which have already dropped following the announcement.




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