The South African property market is unlikely to feel any deep impact in the wake of Brexit – and far less than perhaps thought of says Stuart Manning, CEO of the Seeff property group.
Manning argues that it may even further enhance the country’s already attractive property proposition for investors.
His comments come in the wake of Britain voting to exit the European Union following a referendum held on Thursday, the 23rd June.
The announcement sent the rand into free fall against the dollar and it dropped in value by just short of 9% to a level even lower that the ‘Nenegate’ incident of early December.
By midday, however, the ‘panic’ had subsided and the rand recovered, Seeff noted.
“What this shows,” said Manning, “is that there tends to be an initial ‘panic’ before the markets settle down again.”
“South Africa already faces currency volatility, especially as it is linked to the emerging markets and what tends to happen now, is that emerging markets have lost a bit of its shine for investors who, as we saw on Friday, would look to shift their funds to safer havens. Part of the drop in demand and value could also be attributed to some currency trading and profit taking,” Manning said.
He said the country may see a fall-out from Brexit in the form of a further weakening of the rand and with that, rising import costs, higher inflation and a resultant interest rate hike as the Reserve Bank would look to step in to stem the tide.
“As we are already in an upwards inflationary and interest rate hiking cycle, this could add further pressure,” he said.
Adrian Goslett, CEO of RE/MAX Southern Africa, said that due to the fact that South Africa is highly reliant on importation of goods, the effect on foreign currency could bring about further inflation pressure as the rand weakens.
“In short, with a depreciating currency, importation will cost more and inflation will increase in South Africa, creating a repetitive cycle. We will essentially be importing inflation,” said Goslett.
“The expectation is that Brexit will bring about no greater economic risk than what we are already dealing with such as the threat of poor economic growth, rising inflation, rising interest rates, a weaker rand, shrinking household disposable income and rising cost of credit and home ownership,” Seeff’s Manning said.
Goslett said that a sustained weakened rand will also place further pressure on the Reserve Bank in increase interest rates. “There is no doubt that interest rates will continue to climb, which will also reduce potential homebuyer’s affordability ratios. Homebuyers will have to factor in the rising interest rates and ensure they have some financial cushioning.”
Manning said that the market is sentiment driven with both consumer and business confidence currently at historically low levels right now.
“Having said that, what we have seen over the past few months, is that people are reading more ‘gloom and doom’ than the reality. Market commentators who have predicted serious ‘gloom and doom’ for the property market have had to back-track a little as none of the ‘disasters’ predicted have befallen the market as yet.
“In fact, we have seen an admission that the market is still well-balanced as South Africans just take the challenges in their stride and continue about their daily lives, working and buying and selling property as they need to or want to,” Manning said.
He said that the The flipside of Brexit could well be that a weaker rand brings more tourists, investment and property buyers.
“Our view is that we can only control what we can and South Africans are likely to take this in their stride and continue to live and work, move around and buy and sell property as they need to or want to,” Seeff said.
Head of Home Loans at Standard Bank, Steven Barker, said that while it is too early to confidently predict the impact of the Brexit outcome, it has added further uncertainty to the South African property market.
“The consumer is expected to continue to face pressure on household finances in a rising interest rate cycle. Negative moves in the currency market could lead to higher inflation which could put interest rates under further pressure,” he said.
“We will have to wait to see how this unfolds, but consumer confidence remains low and the property market is starting to see a slow-down in activity. Lending activities by the mortgage providers is reflective of the interest rate cycle and the deteriorating economic outlook.”
Goslett said that the property market could see many first-time buyers holding back and adopting a wait-and-see approach until the full effects of Brexit on the South African economy are revealed.
“Another that we could see is a rise in the cost of credit. Usually during periods of global economic uncertainty, banks become risk averse, tightening their lending criteria. As a result, access to finance becomes increasing more difficult, as more stringent global lending criteria are placed on the banks themselves. Not only will it be harder to get credit from a bank, it will more than likely be more expensive, which will impact on consumer’s affordability levels,” said Goslett.
the property expert said that while Brexit will have no impact on property prices; the market is currently in a transition period with momentum shifting towards the buyer.
“This is more a result of domestic conditions, than any external foreign factors. The shift will cause property prices to stagnant for the time being. However, that said, opportunities often reveal themselves in times of change. Those who can identify the changing dynamic early on will be able to reap the benefits and take advantage of what the market has to offer,” Goslett said.