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A Boks win, a downgrade, and a property market lull

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South Africa hoisting the Webb Ellis trophy may see foreign and local investors eyeing property in the country.

The Springboks’ Rugby World Cup victory last weekend was the boost the country – and possibly the property market – needed after a gloomy mid-term budget, a credit ratings downgrade and weakened consumer sentiment in Q3 of 2019.

A victory such as this, says Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa, could work towards restoring confidence in the local market, attracting the attention of foreign investors and having a knock-in effect of convincing more South Africans to invest in the local market rather than emigrate.

Although Moody’s rated South Africa at only one notch above junk status, property experts believe the country still offers great opportunities for foreign and local investment buyers.

Mike Greeff, chief executive of Greeff Christie’s International Real Estate says while Moody’s may have changed South Africa’s credit rating from stable to negative, they have not tampered with the Baa3 long-term foreign currency and local currency issuer ratings.

“This is good news for foreign investors who can expect a decent level of stability from the rand against the major currencies. This means South Africa is a good place for foreign buyers to invest and they don’t have to worry too much about the exchange rates.”

However, local property owners paying home loans will have to be “a bit more cautious” with their disposable income and avoid the debt trap that comes with the holiday season.

“Prospective home buyers will have to maintain excellent credit scorings as lenders are unlikely to relax lending criteria in the near future. The path to economic recovery is, however, possible. It may not be as quick as we’d like, but, with discipline and careful policy implementation, the economy can be corrected,” says Greeff.

South Africa’s current economic and political reality may not be pretty, but Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, says “we can either sit in a corner” and give up or, as a business community, “find creative solutions to grow, or at least maintain, our industries and service clients to the best of our ability until the economic tide turns”.

The Springboks in their Victory Tour in Cape Town. Video: Warren Brewis

“The property sector is feeling the crunch because it relies heavily on investor confidence in the macro-economy but we’re not dead in the water. Investors with cash are snapping up incredible deals across the country because they look at the long game and banking institutions are coming to the party with aggressive lending.”

Herschel Jawitz, chief executive of Jawitz Properties, says mortgage lending in the last period has outstripped property price growth and inflation. This may indicate buyers see the property market “offers real opportunities”.

“Moody’s is still willing to wait to see if the situation changes. It may finally spark government into much-needed action.” Even if this is the case, it will take time, says property economist and valuer Erwin Rode, chief executive of Rode & Associates.

“One half of the government, including the minister of finance and the president, knows exactly what must be done but the other half will not take the medicine. And even if the medicine were to be administered now, it is going to take many years for the economy to emerge out of intensive care as this is not your normal cyclical trough. We have a structural problem.

“The same applies to the property market, as the property market by and large reflects the economy, albeit with a lag.”

Consumer confidence plummets

After holding firm amid a year of weak economic growth and rising unemployment rates, consumer sentiment finally slumped deep into negative territory during the third quarter of 2019, the FNB/BER Consumer Confidence Index (CCI) has revealed.

Sentiment plunged from +5 index points during the second quarter of 2019 to -7 in the July to August period. Looking at the previous indices, FNB economist Siphamandla Mkhwanazi says consumer sentiment initially rocketed to a historic high of +26 at the height of Ramaphoria in the first quarter of 2018, but then started to back pedal shortly afterwards.

“However, for four consecutive quarters, from the third quarter of 2018 to the second of 2019, consumer sentiment remained within a fairly tight (yet positive) range of +2 and +7 index points, before capitulating during the third quarter of 2019.

“A confluence of adverse economic developments in all likelihood contributed to the slump in consumer sentiment, including rapidly rising unemployment, declining real per capita incomes, news of a further R59billion government bailout to Eskom and an upsurge in xenophobic violence.

“In addition, the rand has depreciated notably, while the SARB’s decision to keep the main policy interest rate unchanged in September may have disappointed indebted consumers hoping for another rate cut.”

A breakdown of the CCI according to household income group shows consumer sentiment deteriorated significantly across all income groups, but especially among highincome consumers.

“Household budgets are increasingly being strained by rising unemployment – now at a 16-year high of 29% – slow wage growth, high tax rates, and soaring electricity prices.”

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