South Africa is one of those countries with massive potential but so far it has failed to maximise this. We have seen economic troubles aplenty and political problems are never too far away. The reason why many people believe South Africa has significant long-term potential is because of the growing population and the expanding economy. However, the recent downgrade of South African sovereign debt to “sub- investment” is a bitter blow. What next for the South African property market?
Downgrade was expected
In all honesty South Africa dodged a downgrade last year so the Standard & Poor’s downgrade to sub investment grade does not really come as a surprise. It will have a long-term impact upon the South African property market but this was already coming into play before the downgrade. In simple terms the downgrade will increase the cost of debt for the South African government which will in turn see commercial loan rates increase which will obviously impact the South African property market.
The fact that the government has not been very welcoming of foreign investment in land is another issue which has not gone down very well with worldwide investors. While there may be more than enough investors within South Africa there are certain skills and experience which overseas investors can bring to the table. This recent downgrade will also see South Africa removed from the list of many investment companies because of the sub investment debt rating.
Is it all in the price?
The Property Buyer Show is in South Africa for the first time with an event in Cape Town. There will also be other events around South Africa over the coming years as property experts look to entice overseas and domestic investors into the property market. While the task of a property market event is to wax lyrical with positive aspects going forward, that is not so easy with South Africa. However, while sentiment will be hit in the short to medium term, as investors become accustomed to the change in debt rating, in the longer term surely South Africa will need more and more homes?
There was obviously some disappointment when the downgrade was announced but like we mentioned above this was no real surprise. It will impact all areas of the economy and investment markets but it is very often darkest before the dawn. Whether now is actually the time to start putting a toe in the water and testing the market is debatable. It may take a few weeks/months for the news to filter through and the overall impact to be appreciated – or as many suggest it may already be in the price?
Investors are inclined to run for the hills when individual property markets seem to be heading downwards and struggling to survive. The fact is that South Africa will prosper in the longer term although some short-term issues may put a break on developments. Many experts believe now is the time for first time buyers and those looking to relocate to grab some exposure to the property market. There will be significant opportunities as sellers come out of the woodwork, buyers retreat to the roadside and potentially prices will adrift.
A growing population, long-term economic changes and potential for a prosperous property market make South Africa immensely attractive to many long-term investors.