South Africa

Rental industry awaits interest rate decision

Read time:
A pair of hands using a laptop with a graph line superimposed over the image

The South African Reserve Bank (SARB) will make its next interest rate decision on 21 September, and forecasters are divided on where they will go next.

Inflation dipped to 4.7% in August, according to Statistics SA – the lowest level since July 2021. This puts it squarely in the middle of the target range of 3-6%, a sign that SARB’s previous interest rate hikes (10 successive increases since July 2020) have paid off.

Many property experts and economists now expect SARB to hold the repo rate steady at 8.25% this month. According to Richard Gray, chief executive of Harcourts SA, “the next move will be down early next year”.

But other economic factors could throw a spanner in the works. The combination of rising oil prices and a weakening Rand has driven up the price of fuel sharply. According to Stats SA, fuel costs have been a key driver of inflation since 2021, and falling transportation costs were key in the recent fall in inflation. This month’s rise in fuel costs could push inflation upwards again, promoting a further prime rate rise from SARB.

Forecasters will also look to the United States, where the Federal Reserve will make its next decision on interest rates on 20 September. The Fed is expected to hold interest rates steady, but if they do opt to increase them, the SARB is likely to follow.

What would interest rate moves mean for residential rentals?

The higher interest rates and inflation seen since 2021 have reduced tenants’ ability to afford rent, making arrears more likely – and requiring resilience from agents trying to protect their landlords’ investments. But according to the latest PayProp Rental Index, for many tenants the cost of debt repayments has been offset by rising incomes. With inflation now lower, tenants will hopefully find it easier to pay their rent – and if necessary, repay arrears.

On the other hand, high interest rates on mortgage bonds encourage tenants to continue renting instead of buying property, increasing demand for rented homes. This has been one of the factors behind the accelerating rental growth measured by PayProp over the past seven quarters. If interest rates go up again, that effect will get even stronger.

Rental agents will need to be prepared to manage continued high tenant risk by ensuring that their arrears recovery and tenant vetting processes are as robust as possible. Vetting mechanisms like the PayProp Tenant Assessment Report, which uses applicants’ rental transaction history to assess their riskiness, will be more useful than ever.

No items found.

See PayProp in action

Let us show you how to get more out of work and more out of life!

  • Real-time property management
  • Real-time bank integration
  • Real-time reconciliation & payments