By John Jack, CEO of Galetti Corporate Real Estate
Contrary to popular opinion, the new repo rate will result in investors with solid balance sheets lining up to take advantage of the opportunities presented.
As announced by the South African Reserve Bank on 23 July, the repo rate now sits at an unprecedented low of 3.5% with the prime lending rate at 7%.
This is the fourth cut for this year and as it stands, the repo rate has now been reduced by 300 basis points in 2020 alone. With or without lockdown, this is where we believe the repo rate needs to be in order to encourage further investment.
It Is Not All Doom & Gloom
With no option to reduce tax, interest rate reductions are one of the few mechanisms that the government could make use of to stimulate spending. In addition to positively impacting on the price of property for cash buyers (in particular), prime-linked loans will also receive some reprieve.
The historically low-interest rate levels, coupled with the highest property yields that the market has experienced in 20 years, brings great opportunity for investment, and will certainly see transaction volumes increasing.
The team at Galetti is currently working with a number of key players who are eager to seize the opportunities that are currently presenting themselves in the market.
While we predict it may take three to five years for corporate real estate to return to levels experienced early last year, there is some hope for the present.
We believe that the market is entering a phase of low growth. For this reason, yields need to be pushed out – to compensate investors for the lost capital growth, leading to similar total returns. This phenomenon is coupled with a total re-rating of rentals across the board and reversions reaching levels as low as 30-40%.
Hurry! Time is of the essence. Let our team help you make the right investment call.