Despite an initial rush of concern about the United Kingdom’s vote to leave the European Union, the impact on South Africa’s property market may turn out to be marginal, provided buyers maintain a long-term perspective.
The effects will be particularly hard on the bottom and middle tiers of the property market, but it remains a solid, safe investment over the long term.
This is according to David de Waal, CEO of Steeple, who says the rand took a pummeling when the UK voted, by a small margin, to leave the 28-member trading bloc last month.
He says fears of additional economic fallout for South Africa remain widespread. However, he says the rand has since recovered, and the South African Reserve Bank opted not to raise interest rates when its Monetary Policy Committee met the last time.
"This is great news for property buyers," says De Waal.
"It is important to bear in mind that since South Africa’s economy depends on capital inflows from abroad to finance the current account and maintain growth, the property market is vulnerable to ructions elsewhere in the world. The Brexit vote was one of these. But this is not the only, nor necessarily the most important challenge confronting us."
De Waal says developments in South Africa, such as sluggish growth and unemployment, place a greater strain on the property sector.
He says the Brexit vote has introduced a degree of uncertainty about the economic trajectory for the coming years.
"It is unclear whether the UK will follow through with it, and how well this will be managed. Whether the South African government can secure the country’s interests in a changed environment will also be watched closely," he says.
"Risk aversion on international currency markets could pull money out of South Africa, weakening the rand and driving inflation. This would mean economic contraction and interest rate hikes."
De Waal says the effects will be particularly hard on the bottom and middle tiers of the property market.
"First-time buyers in particular are likely to be cautious before entering the market. But property remains a solid, safe investment over the long term," he says.
"You buy a property with a 20-year payment horizon. It’s a patient commitment. Instability is unpleasant, but inevitable. Planning for it is crucial."
He says to think of someone who took out a bond in the 1990s."It would be coming to an end now. They have seen big swings over that period. Interest rates went to 24% in 1998. At the moment, nothing near as dire is on the radar," says De Waal.