Real estate hit hard by high interest rates

The deepening effects of high interest rates coupled with a general slowdown in economic activity seem to have caught up with the real estate business.

In July this year, the Reserve Bank of Malawi (RBM) reduced the policy rate—rate at which commercial banks borrow from the central bank as a lender of last resort—to 18 percent from 22 percent.

Following this, commercial banks responded by slashing lending rates to around 27 percent.

Despite the reduction in interest rates, property and management consultancy firm Knight Frank says the downward trend in interest rates, though a positive phenomenon, has not yet gone far enough to reactivate the property market in particular or economic activity in general and this has been made worse by the prolonged electricity blackouts.

Knight Frank managing director Don Whayo, in interview on Friday, said high interest rates have been the biggest contributor to a slowdown in the growth of real estate.

He said people have stopped borrowing from the banks to finance property purchase and there has been an unusually high default rate on loans, thereby triggering foreclosures.

“The overall effect has been that generally it has been difficult to sell properties. People with ready cash have been and continue to be the only players in the real estate market, thereby making the market to be a buyers’ market with an upper hand in bargaining for prices lower than the asking prices,” said Whayo.

In terms of commercial property market, he said apart from the warehousing (logistics) business, Malawi does not seem to have a vibrant industrial property market.

“The rental market in this sector of the property market, especially the retail subsector has continued to hold up in spite of the economic problems the country is facing,” he said.

In recent times, small-scale businesses have voiced out concerns on high interest rates, citing this as a stumbling block for small business to borrow from from banks.

Indigenous Businesses Association of Malawi (Ibam) president Mike Mlombwa is also on record as having said that though rates have been tamed, interest rates are still high pointing to the fact that people think twice before they borrow from banks.