The influence of politics on the real estate market

Private Property South Africa
Engel & Volkers

South Africa has never lacked behind any country when it comes to political turmoil. Politics influences everyone and almost everything in the country, so how has it and will it influence the real estate market?

Looking back at 1994, when the first democratic elections took place, the hype that was created on a social level ensured the emigration of thousands of South Africans. Due to this, the real estate market became a complete buyers market, homes were sold for next to nothing as sellers just wanted to immigrate. To date immigration has played a factor in selling when political turmoil arises. Due to this factor, investor confidence has taken a battering as the political situation affects negatively on economic growth. In recent history, stats have shown that the number of sellers selling due to immigration has doubled. This is mostly due to political instability.

Factors that are also influenced by politics indirectly include things such as rising inflation due to global food and oil prices which decreases the monthly disposable income. This all leads to a rising household debt-to-disposable-income ratio.

Even though we have seen some ups and downs in the real estate market, during the years since the first democratic elections, the future still looks bright. Recent stats has shown that black buyers have made a big entrance into the market and that almost 50% of the home loan applications now come from black buyers - a very long way from the only 12% it contributed a decade ago. This could be due to many factors, one of the main influences being BEE. This has been part of South Africa for many years now, but the increase in bond applications show that black buyers are now more confident in investing in property and have better job security than before.

“This is a very positive sign for the real estate market and we hope that this continues. We have seen major changes in the real estate market over the years, but the entry of new buyers into the market are surely welcomed,” says Craig Hutchison CEO of Engel & Völkers Southern Africa.

The role which politics plays towards foreign investors is immense. Any political instability within South Africa causes potential international buyers to retract and this causes buyers to drop their prices. One of the major concerns for buyers looking at farm properties is the land reform situation. These properties have been attracting a lot of international attention as many of them can generate some income to the buyer. With land reforms being called for, international, as well as local buyers, stay hesitant when investing in South African properties.

The political situation of neighbouring countries can easily spill over into South Africa. Zimbabwe has for long had political problems and this directly influences any potential investments both locally and internationally.

“There are quite a number of negatives when it comes to the influence that our politics have on the real estate market, but we continually see great improvements in the market, not only from local buyers but internationally as well. Engel & Völkers have a very large international referral system and we have seen a real increase in interest from international buyers especially from Germany and other parts of Europe,” Craig concluded.

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