Property companies wait expectantly for rate-cutting cycle to start

The Reserve Bank is expected to make its first interest rate cut in 18 months, with property companies hoping for a drop of between 50 and 75 basis points by early next yearAn anticipated first interest rate cut in 18 months on Thursday would give listed property a boost, according to fund managers.

But listed property could experience some joy if the monetary policy committee votes in favour of the first rate cut since March 2018. The possibility of a cut is high, with the Bank of America Merrill Lynch on Monday saying that if the US Federal Reserve cuts rates, SA’s Reserve Bank could cut rates by 75 basis points by January 2020.

“It could help to boost consumer confidence and GDP growth over time. This will be good, especially for SA-focused real estate investment trusts and more so for mall landlords,” he said. “Since 20% to 30% of these companies’ debt is floating, a lower interest rate means they will see their interest expenses fall. They will then have more distributable income and be able to pay out more dividends,” Evan Robins, a portfolio manager at Old Mutual Investment Group, said.

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