How the election results will impact South Africa’s property values

A record-low voter turnout for the elections this year has signalled citizen apathy and a lack of confidence in the democratic process.

But many people don’t realise that when it comes to local municipal elections, their vote matters more than ever – as the municipality responsible for their ward has a direct impact on the value of their property, says John Jack, chief executive of Galetti Corporate Real Estate.

“Be it commercial or residential – if your property is located in an area with a dysfunctional municipality, the value is bound to depreciate as investors lose confidence and tenants look elsewhere when looking to buy or rent.

“It is essential that voters understand the link between their local government representative and the quality of municipality they will be able to lead and the impact it will have on their property value before making their mark,” he said.

Below, Jack explains how service delivery, which indicates a functioning municipality, directly influences investor confidence and vacancy rates and an area’s property values.

Service delivery

The ability for a municipality to provide adequate service delivery in the area has a significant impact on whether a property will grow or drop in value once a change of leadership takes place,  said Jack. “No one wants to invest in property or build a home in an area where their quality of living, or doing business, cannot be assured.”

Service delivery refers to delivering basic services such as water, electricity, sanitation and refuse removal to an area. This issue has been a massive point of contention between South Africa’s two biggest political parties.

The DA, which controls the Western Cape, has argued that the ruling party’s inability to provide consistent service delivery to the rest of the country is why they should be voted out of power, Jack said.

“Without delving into political rhetoric, it is true that a functional municipality generally produces a high level of service delivery: electricity, clean streets, running water and a functioning town planning department does create desirability for real estate investment as an asset class.”

Investor confidence

There is generally a strong link between a good municipality and investor confidence in an area as adequate service delivery can boost property prices to investor confidence and demand, Jack said.

By comparison, while the province of Kwa-Zulu Natal has struggled with service delivery protests in multiple municipalities – reaching a peak with looting and riots in the winter months of 2021- this does not seem to have dampened investor confidence, he said.

“Major infrastructure upgrades are being made to the coastal town of Ballito as part of the building of the Ballito Village project by developer Arcis and substantial investment has been made in the commercial real estate sector with the recently-announced purchase of two shopping malls by Futuregrowth Asset Management’s Community Property Fund.”

Vacancy rates

 The Western Cape has generally reported higher levels of service delivery than the rest of the country, especially when it comes to load shedding as the City of Cape Town does not rely on Eskom for the entirety of its electricity supply, Jack said.

He added that the province also reports higher levels of investor confidence – with a record-breaking R5 billion injected into the province’s economy between April and June 2021 according to Wesgro, off the back of several major real estate investments.

“However, in spite of these two factors, the Western Cape’s residential property vacancy rate remains two points higher than Gauteng’s, at 14.4% vacancy versus 12.4% according to a recent TPN survey. This may be due to the province’s oversupply of accommodation aimed at tourists and digital nomads, a sector hit hard by the pandemic, rather than political influence.

“When it comes to commercial property it is clear that the municipality-linked investor confidence and service delivery plays a large role in reducing commercial vacancy rates. Around 16% of office space in Cape Town’s CBD remained vacant in the second quarter of 2021, compared to more than 20% of offices in Sandton – Gauteng’s biggest business node.”

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How the election results will impact South Africa’s property values