Wednesday, November 26, 2008

Politics and the Property Market

Considering the current state of South African Politics and of course the current trend in the South African Property Market, the question arises: “Are these two aspects linked or not?”

In lieu of the current political happenings in South Africa, such events create negative sentiment in and towards the country - they are potentially negative for residential property performance. This might impact in the following ways:

Direct Impact – Higher emigration rates.

Indirect Impact – General investor confidence is negatively affected, which can have a negative impact on economic growth and thus on purchasing power for residential property.

Direct Impact:
A high concern recently has been the steady increase in importance of emigration selling in suburban residential property markets - on average, the percentage of residential property sellers selling their homes for emigration purposes has risen from 9% of total sellers as at the final quarter of last year to 18% of the total by the second quarter of the current year.

Indirect Impact:
Other factors, which are indirectly influenced by politics, might include:

  • Rising inflation, influenced by global food and oil price surges, beginning to eat into nominal disposable income growth.
  • A further negative contributor to real disposable income growth more recently has been a slowing economy and formal sector job creation.
  • Rising household debt-to-disposable-income ratio. This was the first driver of a residential slowdown, through causing household debt servicing costs to rise.
Through the ability to influence the levels of emigration from South Africa’s shores, political events have a direct impact on the state of the residential property market.

The negative impact of political instability on the residential market can also be indirect, through its impact on the economic performance of the country i.e.
  • The rand fell significantly with rumours that Minister Trevor Manuel had resigned.
  • Slow economic growth has a negative impact on job creation and thus on household sector purchasing power.
  • This in turn also impacts negatively on the demand for residential property.
When comparing South Africa’s current state of politics with that of Zimbabwe, one can hardly call it a crisis. Even if one looked at the public exchange of words between ex-president Thabo Mbeki and ANC president Jacob Zuma during the ANC presidential elections and comparing this to the Obama – Hillary Clinton and even more so, Obama – McCain clashes our “public debates” seem pretty tame! But nevertheless, these events do have an impact!

The African continent has historically been racked by conflict and dictatorial governments often resorting to populist policies – and with Sub-Saharan Africa generally being the worst performing major economic region in the world, it is not surprising that any form of change raises a magnitude of questions and concerns.

Even though the Mbeki era was far from perfect, the more anxious minority population groups had probably become comfortable with it because over time they thought they had come to know what to expect.

In the case of the Zuma “revolution” with a strong Cosatu and SACP touch, future policy is something of an unknown.

But why would the issues of the minority groups be an issue from the property market’s perspective? Because, although the suburban markets are steadily transforming, the bulk of the total property market probably still remains in the laps of the 3 minority groups (mainly whites) and a tremendous volume of property transactions takes place in those areas - given significantly greater mobility of people in middle to upper income areas.

Taking into consideration the sensitivity of an important part of the residential market to political uncertainty and having seen an increase in the importance of emigration selling as a portion of the total market, the political events of recent times should be seen in a negative light.

Property prices are particularly susceptible to public sentiment and looming in the immediate future is the 2009 general election. A troubled election has the potential to crush the bright outlook for residential property.

When political trouble brews, buyers retreat, the demand for property withers and sellers are forced to accept lower prices for their wares.

Much of the negative influence on things like:
  • Sentiment,
  • Emigration emanating from local politics,
  • Eskom’s power crisis and
  • Zimbabwe’s antics
may have already entered the market even prior to the ANC presidential election in Polokwane and immediately thereafter.

Will this negative impact last? Probably not, since all these factors come and go in cycles and they are the predominant drivers of what is always a cyclical residential property market. Such factors are not necessarily of long term concern as they will continue to come and go as sure as the proverbial “death and taxes”.

1 Opinion(s):

WHITEADDER said...

Fact is that South Africa is no island and the storms of recession and deflation are blowing in many places globaly. I do not think that Mr. Average here has much of an idea of what lies ahead. Useless, selfish leaders do not improve our lot though.