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The Prospects for South African Property Market in 2018 – Role of Politics

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The Prospects for South African Property Market in 2018 – Role of Politics

Politics has of late been weighing very heavily on the South African economy - in particular the perceived frequent, conflicting political and economic policy proposals, especially populist ones, is seen to have negatively impacted sentiment, and so investment. According to Annabel Bishop (Investec Chief Economist) economic growth has been weak to contracting, credit rating downgrades have occurred on deteriorating government finances, and the poor fiscal health of many major state owned entities has required assistance from the government purse.

With the country now in a run up to the national election in 2019, and the ANC’s presidential election at the end of this year, Bishop expects little to change to meaningfully accelerate GDP growth, and weak outcomes are forecast, with foreigners likely to continue to sell off their equity holdings on a net basis (akin to the R49 billion sell off between March and September 2017).
We are according to Cris Harrison (SA Homeloans) at another tipping point moment in South Africa’s history.  

The ANC elective conference in December has 3 potential outcomes:

1. Ramaphosa wins – this is seen as good for the economy

2. Dlamini Zuma wins – this is largely seen as negative

3. The conference is postponed / cancelled – this is dire

What has become evident over the last few years is that the political power in South Africa vests with very few people and our constitution is not as robust as was first thought.

The big question we should be asking ourselves is what does this mean for property and do the three L’s of location, location, location still hold? 

 
The comparison of South Africa to Zimbabwe as a country, strikes a chord of fear in all of our minds. It is commonly accepted that Zimbabwe has gone from being breadbasket of Africa to a basket case – it is so bad that there’s nothing there for rating agencies to rate! However, look at the properties for sale in the upmarket suburb of Borrowdale. It is difficult to purchase anything decent under $500,000 – that’s R7m, and good properties sell easily for over $1m. A good piece of land will sell for $300K.

Venezuela has been reduced to an economic wasteland through rampant corruption, but you won’t find a flat in central Caracas for much less than $100K and that’s for less than 100m2.  

The point is that, even if the outcome in December is negative, and it is looking likely it will be, there is according to Harrison a safe haven in property in good locations.
The South African real estate industry in the long term, is robust and prosperous mainly because people have to be housed, and there will be more people in this world tomorrow than there are today. Our challenge is to remain focused and keep faith.

According to Bishop however, the outcome of the ANC elective conference this December could yet prove a game changer to this negative tilt (probability) of the domestic risk outlook. Market sentiment could improve substantially if the newly elected leader of the ANC is favoured by the markets – i.e. should the right change of leadership be effected.

A gradual rise in economic growth is anticipated out to 2022, reaching a still weak 2.0%. The risks are seen to remain tilted to the downside, with a 54% chance currently of further credit rating downgrades, contractions in GDP and depressed investor sentiment.
Author Cris Harrison / SA Homeloans and Annabel Bishop / Investec
Published 24 Nov 2017 / Views -
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