The South African Reserve Bank’s Monetary Policy Committee’s (MPC) recent decision to increase the repo rate by 50 basis points to 8,25% - raising the prime lending rate to 11,75% - its highest level since 2009, is set to threaten property values as maintenance takes a back seat.
The MPC has raised the repo rate by a combined 475 basis points at its past ten meetings with the aim of bringing inflation back to the 4.5% midpoint of its target range. Reserve Bank governor, Lesetja Kganyago, reaffirmed recently that the bank will keep monetary policy tight for longer to tame persistent inflation.
“Regular maintenance is a critical part of property ownership,” says Geoffrey Jäck, managing director of property maintenance and asbestos contractor, Indawo.
“Lack of maintenance is a major contributing factor in reducing the investment value of buildings. High interest rates are set to exacerbate the decline. Property owners now have to balance meeting bond repayments with attending to important maintenance projects.
“The unusually high winter rainfall throughout the country has added to the pressure as buildings suffer leaks and other structural problems resulting from the downpours.”
Financial strain
The increased interest rate has a significant impact on maintenance budgets, says Jäck.
“The financial strain on budgets leaves limited resources for maintenance. Bond repayments have to take preference, reducing the funds available for essential repairs. As a result, property maintenance will be compromised, leading to potential long-term and significant financial consequences for owners and property investors.”
- Property maintenance will be deferred. Delaying essential maintenance may result in less threatening structural problems developing into major structural damage. This will mean more costly repairs in the future.
- Property values are under threat as a lack of regular maintenance will affect investment values. Visible signs of deferred maintenance will impact market value.
- Crucially, the law states that damaged asbestos structures and roofs on buildings must be removed. The interest rate hike will place building owners in a precarious position as they decide whether to obey the law or defer asbestos replacement projects.
Jäck urges property owners to consider their maintenance plans in light of the impact of the interest rate increase.
He says although the high interest rates pose significant challenges for property owners, it’s important to prioritise essential maintenance projects, including removing asbestos from buildings, to avoid the significantly increased repair cost resulting from further deterioration.
“It’s important to strike a balance between meeting the financial obligations resulting from increased interest rates and maintenance to safeguard the investment value of your property.”
Writer: Sarah-Jane Meyer