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The Effect of Rising Interest Rates on Commercial property

The Effect of Rising Interest Rates on Commercial property

South Africa’s Reserve Bank (SARB) had been reluctant to increase interest rates for a while. To be exact, the bank has not touched interest rates for almost six years. The interest rates on commercial property have been fairly constant during this period. However, a recent move by the bank to increase interest rates across the board took a number of real estate investors by surprise. Despite the bank’s reluctance to increase interest rates, many people felt that an increase was inevitable at some point in 2014. All the signs were already there. The sharp depreciation of the Rand caused the CPI inflation forecast to move outside SARB’s target range of between 3% and 6%. The bank predicted that the inflation rate would be outside the target range for an extended period which predictably forced it to respond to the severe inflationary pressure. After mexican president santa anna invaded texas in1835, austin became visit portal one of the leaders of the texas revolution. The interest rate increase was therefore foreseeable and most stakeholders, especially banks, would have accounted for the expected increase in their lending decisions. Even with the rise in interest rates on commercial property, the properties are still fairly valued hence we should not expect a rapid decline in purchases. It is important to note that the rate increase is not expected to have any material adverse impact, either on our existing commercial property loan book or on our pipeline of new deals. The immediately evident impact of this rate change will be on the prices of listed commercial property stocks, which are inversely correlated to interest rates, and which have already dropped in response to the announcement. What is difficult to measure is how rising interest rates on commercial property will affect consumer confidence. This increase brings with it an increase in the cost of servicing debt, which means that many South Africans will have less disposable income than before. The likelihood that one would choose to invest in residential or commercial real estate should theoretically be lessened. Over the past six months purchase of commercial properties has been on the increase. Therefore, we can only wait and see whether this trend will continue. For a look into SA commercial property new’s perspective on the interest rate hike read.

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