
The South African Reserve Bank has recently announced yet another interest rate hike, increasing rates by 50 basis points. This unanimous decision by the Monetary Policy Committee (MPC) marks the tenth hike since November 2021. With the repo rate now at its highest level since 2009, the implications for the property market are significant. Continue reading as we explore the effects of these interest rate hikes on landlords and provide valuable insights on how they can adapt to the changing landscape.
Impact on Borrowing and Economic Growth
Interest rate hikes inevitably lead to more expensive borrowing, impacting both landlords and tenants. As the cost of borrowing rises, individuals and businesses have less disposable income, resulting in reduced spending. This can have a detrimental effect on economic growth and employment opportunities. The property market, particularly the commercial real estate sector, already grappling with challenges such as power outages, rising maintenance costs, and high vacancy rates, must now face the additional burden of increased borrowing costs.
The Dilemma for Landlords
Landlords find themselves caught between rising interest rates and levies, while also striving to maintain affordable rental increases to keep tenants satisfied. Balancing these conflicting demands can be challenging. Moreover, the looming risk of severe power outages, potentially reaching Stages 7 and 8, adds further pressure on landlords to explore alternative energy solutions. Ensuring tenants have uninterrupted access to electricity becomes paramount, given the potential consequences of extended power cuts.
– Alternative Energy Solutions and Costs: While implementing alternative power solutions such as solar panels or generators with backup batteries may address the electricity challenge, it is essential to recognize that these initiatives come at a cost. Landlords must carefully consider the financial implications of investing in sustainable energy sources. Capital costs for solar panels and inverters can be substantial, potentially impacting their bottom line.
– Finding a Mutually Beneficial Compromise: In these challenging times, it is crucial for landlords to collaborate closely with tenants to find mutually beneficial compromises. Lease agreements in retail and manufacturing environments offer potential solutions, with landlords covering the capital cost of solar panels and inverters to power the building during the day, while tenants assume the cost of batteries. This shared responsibility approach allows for a fair distribution of expenses, addressing both the need for sustainable energy and financial feasibility.
– Utilizing Tax Rebates and Negotiating with Banks: Landlords are encouraged to take advantage of available tax rebates, making sustainable alternative power sources more financially viable. Additionally, negotiating with banks and loan providers for more favourable property interest rates can help offset the increased costs. By securing lower interest rates, landlords can pass on savings to their tenants, fostering long-term tenant satisfaction and retention. Engaging an experienced advisor with expertise in managing these negotiations can provide valuable guidance and maximize results.
The recent interest rate hike in South Africa poses challenges for landlords in the property market. Navigating the rising interest rates and associated costs requires careful consideration and proactive decision-making. By exploring alternative energy solutions, finding compromises with tenants, and capitalizing on available tax rebates and favourable interest rates, landlords can adapt to the changing landscape and maintain a sustainable and thriving property portfolio. Zahir Vallie, CEO and property mogul of Z PROP says, “Seeking professional advice from industry experts is strongly advised to ensure optimal outcomes in these complex negotiations.”