Impact of the GNU on the South African Property Market
The Rainbow Nation and its property market has ridden some storms, but the new Government of National Unity, like the previous one, could spell better days for South Africa's residential property market, says Just Property CEO Paul Stevens.
The effectiveness of the coalition government will largely hinge on the ability of disparate parties, previously at odds with each other, to work together, as well as the GNU’s economic policies and regulatory reforms. For the property market, and the economy as a whole, pro-business policies that encourage economic growth and development could have a positive impact. Policies aimed at improving our ageing and ailing infrastructure, streamlining property transactions and enhancing transparency can create an environment that encourages property investment.
As Bradd Bendall, National Head of Sales at BetterBond notes, "This is one of the most important factors to focus on as this will be the biggest factor affecting the property market. The residential housing market has slowed down significantly since early last year due to the consumer being under strain due to high inflation and interest rates. As our inflation rate has started to drop (headline inflation was 5,2% in both April and May 2024, down from 6.8% and 6.5% in April and May 2023), we should be fortunate enough to see interest rates being reduced in the latter part of the year by potentially between 25-50bps. This would certainly improve consumer confidence and with it stimulate the property market.”
Overall, the impact that this ANC-led coalition will have on the property market depends on political stability and policy direction. Investors and home buyers will be monitoring the Government of National Unity’s ability to maintain that unity and implement effective economic strategies. Without that, we will see market volatility, which will negatively affect property values and investors' belief in the government’s ability to perform effectively.
Cautiously optimistic
Investec Chief Economist Annabel Bishop on 12 June noted that: “Fixed investment remains key to economic growth. May’s Bloomberg consensus for 2024’s economic growth rate remained at 1.1% y/y, as uncertainty around the election outcome prevailed in the survey period, while the rand saw weakness. The reforms ongoing in the freight and electricity sector take some time to feed through, but the improvements at Eskom already are expected to lift GDP growth in Q2.24, with the outcome likely to be stronger than the expected 0.4% qqsa… The Bloomberg consensus shows a downward dip in May’s forecasts from 1.6% y/y and 1.9% y/y in April for the next two years, but this dip is likely temporary, once SA establishes the GNU, which sees progress continue on Eskom and Transnet.”
Over the medium term, economists are more optimistic with Momentum seeing possibilities for growth reaching between 2.4% and 3% in the next five years with a government that will ensure the stability of the Reserve Bank, South African Revenue Services, treasury, National Prosecuting Authority, security cluster and the judiciary.
On 20 June, the rand strengthened to below R18/USD for the first time since August 2023, but dipped again as markets waited for the announcement of the cabinet. If our politicians are able to convince investors (local and international) that the GNU means a stable political environment, we’re likely to see renewed strengthening of the Rand, making investment assets, including property, more attractive due to the potential for capital gains from currency appreciation.
The wait-and-see volatility in the Rand notwithstanding, foreign sentiment towards the ANC-led coalition appears optimistic, and this is probably being driven by the potential for greater political stability and predictable governance.
This optimism may well translate into increased foreign investment in the South African economy, including our real estate sector. Periods of perceived political stability have historically been associated with improved inflows of capital, which can boost property development and elevate property values.
Locally, I’d say, that sentiment remains cautiously optimistic. We’ve been disappointed as voters, but there’s a strong skein of hope that runs through South African hearts, and most of us remember the days when the previous government of National Unity led to improved services for all, growing prosperity and we were a preferred emerging market for foreign investment.
But while we’re hopeful, the years since those Rainbow Nation days have made us wary. South African buyers and investors are likely to weigh the potential benefits of the coalition government against the inherent risks of political instability and policy uncertainty. The cautious optimism reflects a wait-and-see approach, where immediate large-scale investments may be tempered by concerns over the coalition's cohesion and effectiveness.
For home buyers, an improved economic outlook often leads to enhanced consumer confidence, which is critical for sustaining demand in the residential property market. Buyers may feel more secure in their financial prospects, thereby increasing their willingness to invest in home ownership.
While the ANC-led coalition government holds the potential to positively influence the South African property market through increased foreign investment and improved consumer confidence, the outcome is contingent on the coalition's ability to deliver political stability and sound economic policies. Property investors and home buyers are advised to maintain a balanced perspective, considering both the optimistic foreign sentiment and the cautious local outlook. By staying informed and adaptable, they can navigate the evolving landscape and make informed investment decisions.
Investors and home buyers should stay vigilant, informing themselves about political developments and policy announcements that could impact the property market and following market analysts. At Just Property, we are optimistic. We believe the parties in the GNU can work together, and while there will be bumps in the road, as there were after the 1994 elections, we see a new Rainbow starting to appear.