Borrowed from: Residential Property News
Everybody felt it. The rand certainly felt it. That tangible sense that the runaway, near-derailed train that is South Africa, was halted in the nick of time, and put firmly back on the tracks. Not only were the rumblings felt, but everybody and everything reacted to the decisive action taken by the new South African leadership, and local and international confidence was boosted here and abroad.
This rise in confidence is what it takes to ignite a sluggish economy, and although some of the decisions and appointments of the SA leadership are quite recent, the sense that it would come right was felt from the end of 2017, through these first months of 2018. The property market has reacted extremely positively, and from a sluggish market, top sales figures have been reported month after month, in many suburbs in KZN.
The most recent news that global ratings agency Moody’s Investor Services took the decision to leave South Africa’s international long-term credit rating unchanged at Baa3, was not unexpected, but nevertheless, it evoked a collective sigh of relief. “What was way better than anybody anticipated,” says Stanlib’s Chief Economist, Kevin Lings, is the upgrade of the outlook from negative to stable, effectively ending the review for a downgrade. Lings says Moody cited three factors which contributed to their decision: the institutional decay has been halted in South Africa (largely around decisions taken for SOEs); an expectation that the growth outlook for SA would improve (partly supported by a global backdrop) – the uplift in business and consumer confidence, reflected in the strength of the rand; and thirdly, that government finance would improve: “The VAT increase, an unpopular local decision, is regarded as a positive for the credit rating,” said Lings.
Clearly the markets welcome Moody’s decision: “It improves the prospect that the reserve bank will cut the interest rate by at least 25 basis points, and possibly follow that up with another cut,” said Lings.
And he was right. A home loan interest rate cut of 25 basis points, bodes well for property buyers and sellers. It’s yet another confidence booster, and a sign that South Africans can stop holding their breath. For those who might have been anxious about their affordability, this cut may give them the confidence to buy their own home. And for homeowners in general, this cut could offset some of the effects of the additional one percent VAT.
Whenever a country’s economy becomes strained, the properties which tend to be most affected are those in the higher-priced categories. That’s not simply the high priced homes in the elite areas, but in every suburb. For example, some suburbs will have R2m as their tipping point, so sales below that were ticking over, but above that figure, slow.
The good news is that for the past few months, that’s changed significantly. More affluent buyers have renewed confidence, and that sector of the market is showing a satisfying revival.
Nobody needs be told either, that property development and construction is all around us. Infrastructure is forging ahead, and new gated estates, apartment blocks, and numerous retiree developments are coming out of the ground. And not only limited to the north coast, but west and south too, in price categories which are more affordable.
Yes, the new political regime has to assure the ratings agencies that they can indeed implement what they’re promising, and that they can effectively manage some of the big issues which are currently being faced, so that investors retain confidence. Confidence is everything.
But South Africans are feeling positive, new first-time buyers are seeking out homes to buy, and for the first time in a while, the outlook of South Africans has shifted from negative to stable…to upbeat.
Original Author: Anne Schauffer