Increase in rates will continue to contribute to a subdued residential market

Herschel Jawitz, CEO of Jawitz Properties comments on the latest MPC interest rate announcement.

Herschel Jawitz says that the decision to increase rates by 25 basis points was not unexpected given that the latest CPI numbers at 5.1% which are also in line with expectations. The Reserve Bank has been trying to balance its inflation mandate with a subdued economy but consistency of policy is also key in terms of keeping inflation in check. The biggest challenge is virtually all the pressure on inflation is supply driven like a weak exchange rate and the increased cost of fuel. There is zero demand pressure on inflation. This extends to rental inflation which is part of the basket of goods and services used to determine the CPI numbers.

According to the latest FNB Property Insights report, the actual increase in year on year rentals rental is just over 4% but the escalation in rates and non-electricity utilities sits at a much higher figure of 11% - once again a supply side issue. The increase in rates will continue to contribute to a subdued residential market from a demand point of view. In real terms with inflation at 5.1%, property prices will continue to decline in real terms after inflation across most parts of the country and that the current residential market offers the best value to buyers since the market crash in 2009 for those buyers who get into the market.