Potentially difficult times lie ahead for South Africa’s property market which was only just beginning to make a comeback says auctioneering firm Park Village Auction’s Jaco du Toit who heads up the company’s property division.
“There’s a lot going on on the socio-economic front which doesn’t bode particularly well for South Africa in general and the property market in particular,” explains Du Toit.
“A number of factors are putting off both local and international buyers from committing to purchases to some extent until they have a clearer picture of where the country is headed. Factors include rand weakness, high inflation, weakening metal prices, on-going violent strike action, a rising trade deficit, continuing uncertainty regarding property rights and land reform, high levels of crime, weak service delivery and political in-fighting.”
Increasing input costs such as labour, electricity, water, property rates and taxes and raw materials as well as skill shortages, crumbling infrastructure and credit downgrades are further undermining South Africa’s social fabric and spooking investors he says.
Evidence of buyer jitters could well already be playing out in the buy-to-let market which was recently described by FNB as “dead”. This description was linked to the release of its second quarter Estate Agents Survey which claimed that only eight percent of homeowners are buying property for letting purposes.
The fact that the National Credit Regulator recently stated that there has been an “alarming” increase in impaired credit records isn’t positive either as this means that fewer people will be able to access home loans adds Du Toit.
“Worryingly, as things stand, the potential for another cycle of unrest cannot be dismissed. If inflation accelerates as it is tipped to do, working-class households will be hit hardest as the cost of food and fuel would increase yet again. Thus, any wage increases gained through strikes will be eroded which could spark off another round of social upheaval, strikes, rand weakness, investor runoffs and yet more inflation.”
Hopefully this scenario will be nipped in the bud though and the rand, which is a particularly fluid currency, will change direction says Du Toit.
And it’s not all doom and gloom. Confidence in the building sector has improved, there are suburbs across South Africa which are performing very well, property values are improving and demand for auction properties remains fairly robust. Expectations are also running high in anticipation of government’s National Development Plan (NDP) which should kick-start major infrastructural upgrades in the near future.
Encouragingly, industry observers continue to state that there are good reasons to remain confident in South African property as an asset class. A recent survey released by ‘The Economist’ seemingly bolsters this view in that it shows that South Africa ranks third in terms of global house price growth.