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What does a lower repo rate mean for SA’s rental market?

MAIN IMAGE: Jan Davel, new CEO of PayProp Services.

A lower repo rate offers some reprieve to homeowners but a stronger economy is what is needed to see growth in the property rental market says Jan Davel, new CEO of property management company PayProp Services.

Davel’s appointment was announced last Friday. A past chairman of the Franchise Association of South Africa and director on the boards of various real estate bodies such as REBOSA, Davel joined the PayProp South Africa executive team in January 2019.

Commenting on the recent drop in interest rates, Davel said the lower rates will result in slightly lower monthly repayments to service home loans, vehicle loans and other debt for South African consumers. This should increase their disposable income, enabling them to either spend more or repay debt sooner.

“In reality, we expect very few consumers to use the 25 basis points to repay their debt sooner. On the contrary, we expect many consumers’ appetite for credit to be stimulated. This additional injection of money into the economy should effectively result in higher economic activity and growth – which is one of the main reasons central banks lower interest rates in the first place.

“From a rental market perspective, we’ve seen historically that there is not a strong correlation between the repo rate (and by extension the prime lending rate) and rental growth rates. Rather, rental growth is stimulated by other economic factors like supply and demand and affordability”, Davel explains.

There isn’t a strong relation between the repo rate and inflation fluctuations and rental growth.

He says a stronger economy, backed by political stability and boosted by job creation in both urban and rural areas, is probably the only solution to bringing more consumers into the formal housing sector, reinstate investor confidence and, generally, stimulate those economic factors that would lead to growth in the property rental market.

“It’s important to remember that property ownership normally goes hand-in-hand with long-term debt (as well as constantly increasing rates and taxes, security and maintenance costs). Minor changes to interest rates, which could be short-lived, should therefore not be a primary driver when one considers home ownership or the rental market’s yield performance,” ends Davel.

Davel has extensive experience in the real estate, legal, banking and franchise sectors and has received many business and leadership awards. He is also an admitted attorney with the right of appearance in the High Court of South Africa.

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