Property sales seem untouched by socio-political uncertainty
The impact of the heightened socio-political uncertainty in South Africa this year has raised the risk of interest rate hikes, but does not appear to have resulted in any increase in residential property selling by homeowners intending to emigrate, FNB said recently.
John Loos, a household and property sector strategist at FNB, said the downgrade in South Africa's sovereign ratings because of increased uncertainty linked to strikes and rising social tension had the potential to place additional constraints on the South African fiscus and negatively affect growth.
The recent turbulence had also contributed to bouts of rand weakness, he said.
Loos questioned how these negative developments potentially affect the residential property market.
He said higher costs of borrowing for South Africa, should they occur due to rating downgrades or heightened risk perceptions by investors, had the potential to restrict economic growth to lower levels.
In addition, pressure on the rand could increase imported prices and exert some upward pressure on consumer prices, which had the potential to eat into household disposable income, he said.
"Due to this upward pressure on consumer price levels, rand weakness also raises the risk of interest rate hiking although as yet the rand weakness has probably not been significant enough to warrant rate hikes," he said.
Loos said these factors could be seen as potential "indirect" impacts on the residential market via negative impacts on purchasing power.
But there were also direct impacts on this market because of changes in the sentiment of local homeowners who were considering emigration.
This could also cause a weakening in foreign buying of local property because of a deterioration in aspirant foreign property investor confidence, he said.
But Loos said results of the third-quarter FNB estate agent survey did "not really" show signs of direct negative effects on the residential property market to date.
Loos said estate agents estimated the percentage of sellers selling to emigrate had dropped to 3 percent in the third quarter from 4 percent in the previous quarter, which was the lowest estimated emigration selling percentage since the introduction of this survey question at the beginning of 2008.
There was a decline in foreign buyers to 3 percent of total buyers of local residential property from an improvement in prior quarters to 4 percent, but Loos said they would not draw any "hard and fast conclusions" based on the data from one quarter.
"The currently weak global economic times probably masked any changes in sentiment towards South Africa.
"Even if a heightened number of domestic homeowners were feeling a desire to emigrate in recent times, job prospects in some of the traditionally popular emigration destinations are far from rosy.
"In addition, the financial times in economies such as Europe and the UK, from where a significant portion of South Africa's foreign buyers come, are currently tough and that could be putting pressure on foreign buying," he said.
Loos added that buyers from African countries were one group that did not appear to be affected by recent tensions, having kept an upward trend.