It’ a pivotal week for the property market with the general elections today and, a day later, an announcement on the repo rate by the South African Reserve Bank (SARB).
As South Africa has its first national elections in five years – dubbed “the most critical election since the end of apartheid 30 years ago in 1994” – the property market is on tenterhooks.
The outcome will probably set the tone for economic stability and property market dynamics in the coming years.
Would-be property owners often view the months leading up to an election as a time of heightened unpredictability, causing them to adopt a wait-and-see approach, preferring to be cash liquid, before making significant decisions, and this has also been the case for many in the local property market.
Impact on the market
However, in spite of some pre-election jitters, it is the prime lending and repo rate announcement tomorrow, the day after South Africans go to the polls that will probably have the most immediate effect on the market.
The Monetary Policy Committee meets on Thursday to determine changes to the prime lending and repo rate. Although the SARB operates independently of political influences, its decisions impact market activity.
And, in spite of the optimism toward the end of last year that South Africans would begin to see rate cuts by the middle of this year, which would give consumers appetite to purchase a home, it is widely expected that the SARB will hold rates at 8.25%.
A reprieve needed
“Homeowners are desperate for a reprieve, considering the prime lending rate has held steady at 11.75% since May last year, says Bradd Bendall, the interim CEO of BetterBond.
Higher interest rates reduce the demand for property purchases, which, in turn, could lead to declining property values.
The recent adjustment of the SARB’s timeline for achieving the target inflation midpoint has added to the market’s challenges, with anticipated interest rate cuts delayed until 2025.
“Of course, a change in political leadership may affect consumer sentiment and investor confidence over the next few months, and a new government could introduce policy changes that impact the property market. But, as Lightstone notes, property registration volumes and prices may drop during an election year, but they usually recover soon thereafter,” says Bendall.
“With geopolitical tension and inflationary pressures being felt around the world, these factors may have a more profound impact on the property market than the elections. We remain cautiously optimistic that the property market’s resilience will once again see it through this period.”
Downward shift
There’s no question, says Lew Geffen Sotheby’s International Realty CEO, Yael Geffen, that South Africa’s property market has shifted down a couple of gears before the election.
“This isn’t surprising, given that the market has been trending downward for the past 18months anyway, on the back of dwindling electricity supplies, interest rates at 15-year highs and soaring consumer price inflation, not to mention a domino chain of corruption scandals that has resulted in low international investor confidence, all but vanishing.
“The soft market showed, in Lightstone data released in December, a decrease of nearly 100 000 residential transfers went through last year compared to 2022, with the value of trading in the sector shrinking by nearly R90 billion year on year.
“This year, ahead of voting, the market jitters are worse because this poll has been billed globally as the most pivotal South African election in decades. That said, it isn’t all bad news.”
Positive indicators
With many investors adopting a wait-and-see approach, Geffen does however note some positive indicators such as increased cash inflows into South African bonds and a strengthening rand, suggesting potential for post-election recovery.
While the elections introduce a degree of uncertainty, they also present opportunities for improvement in local governance and potential economic reforms.
John Jack, the CEO of Galetti Corporate Real Estate, says in the five years since the last general election, South Africa has undergone massive change, having “battled the Covid-19 pandemic, the ongoing load-shedding crisis, sub-standard municipal service delivery and a weakened economy because of high unemployment levels and rocketing inflation”.
“While the stakes are high, I believe that the 2024 elections will be a tipping point for South Africa, with many citizens no longer willing to accept the failure to deliver on oft-repeated promises of improvement. Regardless, once the elections are concluded, the focus will, once again, shift to stabilising the economy, efforts that should translate to higher activity in the property market.”
Historical data has also shown that things eventually go back to normal after elections.
“It takes maybe two or three months and then everything will start going back to its normal state.”
Let dust settle
Traditionally, sellers often wait for the dust to settle after elections before listing their properties, anticipating a more stable market.
Renier Kriek, the managing director of Sentinel Homes, says this year, almost half the world’s inhabitants will head to the polls to elect their new governments, including eight of the world’s 10 most populous countries.
“In South Africa, we can expect our own election to put the property market into a temporary holding pattern, dragging on the subtle buyer’s market we have been experiencing,” says Kriek.
While he advises owners to wait until the end of the year to consider selling their property, Kriek cautions buyers not to get caught up in election fears and miss out on real estate bargains.
It’s a buyer’s market for property and it definitely won’t turn into a seller’s market until after the election and a rate cut.
Three-ballot voting system
For the first time, the elections will see independent candidates contest elections, introducing a new three-ballot voting system that could reshape local governance and influence property values.
Rhys Dyer, the CEO of ooba Group, believes “independent candidates are often more attuned to local issues and they can drive improvements in service delivery, which boosts property values”.
However, while the candidates might bring localised benefits, the broader economic environment in the lead-up to the elections is causing unease among property buyers and investors.
“The lead-up to a major election is always a time of instability and a heightened economic risk profile for the country in the eyes of foreign investors. As a result, some investors and buyers may be choosing to delay making any further investments or purchases until the outcome is announced.
“To add to this, the industry is already under pressure following the postponement of the expected start date for the interest rate cutting cycle,” Dyer says.
Of the three ballots, the regional and provincial ballots will have the greatest impact on residential property values, as the ballots determine who will govern a local municipality and be responsible for service delivery.
Property values are influenced by the overall stability of an area and inconsistent service delivery can make homeowners feel uncertain about the future.
The negative sentiment can spread quickly, making homes in the area less desirable and thereby impacting demand and property prices, says Dyer.
Municipalities
On the flip side, a well-run municipality that has high levels of service delivery can strengthen investor confidence, resulting in better infrastructure, safety levels and higher values of properties within the area, he adds.
Samuel Seeff, the chairperson of the Seeff Property Group, emphasises the importance of a stable election outcome.
“This stability should have a positive effect on the residential property market,” he says, adding that a rate cut is overdue to stimulate the economy and market.
Adrian Goslett, the regional director and CEO of Re/Max of Southern Africa, says owing to the uncertainty that builds around election time, many investors prefer to keep their finances liquid until the future of the economy becomes more stable.
“It is widely perceived that policy decisions tend to be more favourable leading up to an election and can change post-election. Investors, both foreign and local, are therefore likely to wait a few months both leading up to and following an election period to see if any policy changes come into effect that might affect their return on investment.
“Unsure of how citizens will react to election campaigns and election results, foreign investors also tend to adopt a wait-and-see approach when it comes to investing until they can be more certain of political stability.”
It is clear that no matter the outcome of the elections or the SARB announcement, the impact will be felt in the property market.