SA Political Saga Won't Affect Property Trends Says Expert

Politics Won't Affect Property Yet

FNB’s property strategist, John Loos believes that the recent change in president may have rattled some cages, but it “is unlikely to change an already deteriorating residential market trend”.

Kgalema Motlanthe’s somewhat dramatic entry into the presidency following the ANC’s recall of Thabo Mbeki and the subsequent resignation of cabinet ministers en masse has certainly caused a stir, but Loos says that this will not have a significant impact on residential real estate.

Loos issued a report yesterday saying that, “Insofar as such events create negative sentiment in and towards the country, they are potentially negative for residential property performance”. The direct impact can be in the guise of higher emigration rates from sensitive “suburban” markets, which are still dominated by three minority population groups.

According to Loos, “Indirect impacts can occur when general investor confidence is negatively affected, which can have a negative impact on economic growth and thus on purchasing power for residential property”.

The recent events have likely created the perception of factional divisions within the ANC and highlighted a party whose succession plan was not clearly thought out, especially given the temporary uncertainty surrounding the minister of finance, Trevor Manuel, who has played an integral part in stabilizing South Africa’s economy.

Where some would refer to the situation as a crisis, Loos is more inclined to “call it democracy functioning reasonably well”. He notes that constitutional procedures have been observed and the outgoing president “has accepted the decision, has not mobilized his army or a band of thugs to protect his position, and has not started to import weapons from China or any such thing”.

Loos went on to say that the public spat between Mbeki and ANC leader Jacob Zuma “looked pretty tame” in comparison to the showdown between US politicians of late. Mbeki has merely stepped down and the country does not seem to require a special negotiation process to remove him from office.

However, the events can’t be expected to alter the trends of declining residential property sales, home loan applications and emigration selling that continues to plague the South African market. Loos believes that economic factors should overshadow political events and that there are various things needed to turn the market for the better:

- An expected turn in inflation in the final quarter of the year, with an improvement in numbers “expected to cause real disposable income growth to turn upward as from early 2009”;
- A declining debt-to-disposable income ratio for households, which in turn is expected to cause the debt service to fall in the last three months of the year;
- Interest rates falling, which is expected from April; and
- The “ultimate recovery of the global economy”, which will have a positive impact on the local economy.

Loos seems to think that “a year from now, when the dust has settled on the current process of political leadership change”, the economy will turn for the better and combined with the benefits of 2010, there will be a significant decline in emigration. He added that policy shifts are more important than people shifts or policy wish lists.

“The world’s and our own political history tells us that the utterances from new leaders on their path to power are not always a good indication of what policies are to follow,” Loos advised.

In the meantime, head of Seeff Properties, Samuel Seeff has warned that an improvement in the property market could be further off than expected, thanks in part to the latest political saga. With an estimated 20 000 estate agents being forced out of the industry, the residential sector has taken a firm beating this year, with sales plummeting and falling property prices.

The bad performance in the housing market has been linked in part to negative sentiment about South Africa, with sellers increasingly citing emigration as a motivation behind offloading a home and consumers finding it increasingly difficult to obtain finance due to the stricter credit laws in place.

Many sellers and players in the industry have been biding their time in the hope that interest rates will improve, but even that looks unlikely with recent hints being dropped by SA Reserve Bank governor, Tito Mboweni.

The information in this article is courtesy of Realestateweb (“Politicians won’t move property market yet – bank”, 25 September 2008).

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