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Tenants face stiffer rental costs due to expected interest rate hikes

Property experts have warned another interest rate hike later this month could translate into higher rents for tenants. Picture: Pexels

Property experts have warned another interest rate hike later this month could translate into higher rents for tenants. Picture: Pexels

Published Jul 8, 2022

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Cape Town - Property experts have warned another interest rate hike later this month could translate into higher rents for tenants.

The South African Reserve Bank’s Monetary Policy Committee (MPC), that is responsible for fixing the benchmark interest rate, is set to meet again later this month and all signs point to yet another interest rate hike, with some analysts predicting a bump of 75 basis points.

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This would mean higher bond repayments for homeowners and RE/MAX Southern Africa regional director and chief executive Adrian Goslett said: “Landlords who are still paying off a home loan on the rental property might also decide to increase the rental amount to make up for the higher bond.”

Nevertheless, Lew Geffen Sotheby’s Southern Suburbs rentals manager Lorraine-Marie Dellbridge said coming after the economic upheavals of the Covid-19 pandemic, a recovering economy and the rising costs of living, the possibility of increased rents existed.

However, she said it would be unadvisable.

“This is because in many areas the question then would be: who will rent these properties, when so many tenants are already struggling and seeking to reduce their costs?”

She said the market always dictated the rental rate, but it would be a mistake for an investor to try and cover all their related costs with an over-inflated rental amount as this would result in a vacant property which costs them in full.

Lorraine-Marie Dellbridge, rentals manager for Lew Geffen Sotheby’s International Realty in the Southern Suburbs and False Bay. Picture: Supplied

Dellbridge said the industry had this year seen an increase in landlords trying to market and let their properties themselves as they either didn’t want to or couldn’t afford to pay agents’ commission.

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She said such landlords would find themselves having to weather the storm of day-to-day management of their properties and having the back-up in place in terms of maintenance, as well as the means to manage a non-paying or late-paying tenant.

However, striking a contrary note, FNB property sector spokesperson John Loos said while home-buyer demand slows as a result of interest rate hikes, he expects the residential rental market to strengthen somewhat as aspiring home buyers postpone buying while this period of financial pressure persists.

At the same time, the latest TPN rental monitor survey said consumers were being further stretched as interest rates had started their upward hike, while inflation was reducing consumer spending capability.

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JOHN Loos, from FNB. l SUPPLIED

The analysis said that while the economy grew 1.2% in real terms during the fourth quarter of 2021, the growth was primarily driven by consumer spend, personal services, trade, manufacturing and agriculture. Of concern was the fact that economic growth did not translate to job creation.

As a result, the analysis said, the rental market may well experience an increase in risk as the number of tenants with secure income starts to diminish and more tenants come to rely on a part-time income.

Meanwhile, PayProp data analytics head Johette Smuts said the Western Cape remained the most expensive province for tenants after an increase of 2.8%, from R9142 in the first quarter of 2021 to R9 399 in the first quarter of this year.

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The data show that the Western Cape saw a slight improvement in the percentage of tenants in arrears, from 15.1% in the fourth quarter of 2021 to 15% in the first quarter of 2022.

Smuts said this meant the province ended up below the national average of 18.4%, giving it the lowest tenants arrears figure in the country.

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