Xenophobia Adds to Negative Sentiment in SA

Xenophobia Affects Property

An article published in Business Day has highlighted the increasing negative factors dampening the residential property market, most recently the wave of xenophobic attacks that have spread from Gauteng to other provinces in the country.

FNB property strategist, John Loos believes that there is light at the end of the tunnel and additional factors, such as the drop in new developments and the strengthening rental market will ultimately support the residential market once interest rates begin to come down.

However, Loos adds that the residential property market is “still deteriorating” and will take “longer to recover than previously thought”. He says that while the current atmosphere of rising interest rates is still “public enemy number one” for the residential market, the list of non-interest rate related negative factors is growing.

There are a number of events that have added to the woes of the residential market, including the electricity supply crisis, the rampant xenophobic attacks and the post-Polokwane jitters amongst minority groups.

According to Loos, “High rates of crime have come to the fore and the xenophobic violence just makes it worse. Then there is the slowing economy driven in part by interest rates and in part by the slow global economy”.

Loos is anticipating a drop of more than 20% in the value of new mortgage loans for 2008. Where actual house prices are concerned, the reality seems to be that “we are heading for some house price deflation” (Loos).

In fact, Loos says, “[B]y late this year or early next year, we could have a spell of year on year price deflation of between 5% and 10% nationally”. He believes that the residential market should start seeing signs of improvement next year.

This is based on the bank’s expectation that after a possible two further interest rate hikes of 50 basis points each, interest rates will begin to level out and gradually start reducing next year (Loos).

Loos added that by 2010, South Africa’s economy would begin to “pick up” on the back of a steadily recovering global economy, as well as a drop in interest rates. He also believes that the “slump in development of new stock” will restore balance to the market and a strong rental market will make buying more attractive in future (Loos).

However, property economist Erwin Rode of Rode & Associates, believes otherwise and says that the stagnant resident market will “be with us until at least 2010”.

The information in this article is courtesy of Nick Wilson (“South Africa: Property Reels From Attacks On Foreigners”, Business Day, 28 May 2008).

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