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How the economy will collapse if real estate services cannot operate

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After hearing confirmation that the real estate industry will not be reclassified to operate under level 4 of lockdown restrictions, the real estate industry has joined forces to implore government to reconsider.

It explained that this decision affects not only the thousands that are employed within this sector, but also has a far reaching impact on the economy as a whole.

“Real Estate is unquestionably a multiplier and enabling industry. During the 2007/08 financial crash in the United States, it was real estate that lead the economy out of the recession and back to economic health and prosperity. We believe that this sector can assist South Africa in doing so again,” explains Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.

To back this statement, Goslett quotes the Quarterly Financial Statistics report for December 2019 released by Statistics South Africa that states just how much the real estate industry contributes to the South African economy and, subsequently, to the tax base. In September 2019, Real Estate contributed 11,2% and in December 2019 11,5% as a percentage contribution to total turnover.

“Real Estate in isolation contributes about 5% of South Africa’s GDP and has approximately 42,000 people that work the residential real estate sector. There are many other organisations, industries and businesses that rely heavily on real estate sector to trade. Banks, originators, conveyances, and many more feed off real estate. Without us, their industry stands still. If they stand still, they will lay-off people and further contribute to rising job losses.

“Beyond this, the importance of the real estate industry in providing liquidity in the market cannot be over-emphasised. Property to the value of R20 billion register in the Deeds Office every month. This creates much needed liquidity in the market for buyers and sellers. If people are unable to sell their property, then they cannot raise any capital. The number of distressed sellers is on a rapid rise. These homeowners will not have access to finance unless real estate services are allowed to operate. This will cause them to run further into debt, which will increase bank’s risk and will impact their ability to lend.

“What’s more, if business owners cannot raise capital through the sale of their property to save their businesses, they will have to declare bankruptcy and, along with that, will Press Release be forced into terminating their employees. This will lead to even further unemployment rates as a by-product of the real estate industry remaining closed,” Goslett warns.

As things stand in this global pandemic, governments around the world are trying to inject much needed liquidity into the market in order to help the economy through this crisis and on the road to recovery. For this reason, real estate is currently in operation in most other countries in the world.

Even Italy, an epicentre of the disease, is allowing real estate to operate in the first phase of alert level easing.

“They recognise the contribution that real estate has in the economy and acknowledge that the economy simply cannot function without this essential service. We too believe that there is no better industry than the real estate sector to assist in creating enormous liquidity in a short time, especially for the millions of property owners in South Africa.”

As a final consideration, Goslett acknowledges that there is a unique balance that must be found between containing the risk and spread of the virus and the need to reignite the economy and the fiscus. However, real estate is a sector that can operate in such a way that there is very low risk of spreading the disease.

“In my letter to Minister Sisulu at the Department of Human Settlements on 27 April, I outlined how real estate offers minimal threat according to the criteria that were used in establishing the level of risk for each industry. I further outlined how the industry could be regulated to mitigate risk by implementing strict regulations at each level of easing lockdown restrictions.

“After the ministers have reviewed our submission, I feel frustrated to learn that even garden services are allowed to operate before real estate. These businesses bring crews of 6-10 people at a time through your home, whereas real estate can be limited to 1-1 or even 1-0 if agents are allowed access and are able to do virtual open houses using technology,” Goslett explains.

In conclusion, Goslett and the real estate industry as a whole are extremely concerned that the impact to the South African economy would be detrimental if real estate is not allowed to operate during level 4 of lockdown.

“To help government, we have even formulated the safety measures required to enable real estate to start trading again in a way that addresses the health and safety concerns of all citizens. We commit to working with the government to help with the reclassification and implore them to reconsider their classification of the real estate industry in order to give the economy a fighting chance for recovery,” Goslett concludes.

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