By Andrew Golding
CEO Pam Golding Properties
It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counterintuitively, the residential property market has held up well.
This year (2017) began with cautiously optimistic sentiment as the rand stabilised and, having navigated the choppy waters of a technical recession in the first quarter (Q1), it appeared that the ever-resilient residential property market had again weathered the storm.
Much like our residential property market, the Rand has also shown remarkable resilience to ongoing political turmoil – helped in part by the benign global environment, which has ensured that investors have retained their appetite for risk and are thus willing to keep investing in South African assets.
Then, following the shock waves of being downgraded to junk status in April, the easing of the interest rate by 0.25% in July in response to the weak economy (with growth under 1% this year), coupled with contained inflation, to some extent helped offset the ongoing challenges being experienced.
However, as things stand, political uncertainty is likely to delay further rate cuts for the foreseeable future and the economic situation is in somewhat of a ‘holding pattern’ until the ANC elective conference in December, when hopefully there will be some clarity and some indication of where things are headed.
As highlighted by a recent report by Standard Bank, rand movements remain sensitive to the dollar, and the tax cuts proposed by US President Donald Trump could translate into the Federal Reserve Bank hiking rates faster than expected, which would in turn most likely see selling of SA assets by foreigners in order to take advantage of a declining spread between US and local real interest rates. This would result in rand depreciation and ultimately a rise in interest rates in SA as the Reserve Bank would be forced to hike rates.
Following the recent Medium-Term Budget, it is apparent we will need to wait for the Budget in 2018 to determine how the government proposes to restore the sustainability of fiscal policy and achieve some form of debt stabilisation and fiscal consolidation. We are also hoping for initiatives will help drive access to home ownership. Until then, the prospect of additional credit rating downgrades in 2017 is a factor to consider.