Beleaguered in recent years, subject to the drama of political developments and weighed down by global sluggishness, the economy has played havoc with the investment potential of the property industry. However, optimists believe that this is about to change. What do investors need to know about investing in this uncertain climate?
The first factor to consider, according to Marna van der Walt of Cushman & Wakefield Excellerate, is that investors would do well to exercise a degree of caution right now. The turbulence which has been the defining feature of South Africa’s political landscape has had a ripple effect in all areas, and the property industry has not emerged unscathed. The results are visible in the prevalence of a buyer’s market, even in areas that usually fetch high prices, like Cape Town. At the same time, South Africa’s credit downgrade of 2017 had a long-lasting impact on money circulating through the system: with banks required to hold greater sums in reserve making it more difficult to obtain credit, and government having to pay more to borrow funds, many businesses have been left with little leeway in terms of spending. Add to this the inevitable dent in consumer and business confidence, and it’s easy to understand why there have been fewer cranes around South African cities; fewer businesses seeking out new premises; and more retailers trying to lure consumers.
At present South Africa faces significant challenges as we settle into the new era of government and the turbulence of the Zuma years is felt as we attempt to correct our path and recover from issues such as state capture. We are also dealing with the recent announcement of a technical recession and uncertainty regarding our economic future.
We hope that in the hands of Cyril Ramaphosa, we are able to weather this storm and see an economic recovery on the horizon.
Zimbabwe’s economy has shown positive signs following the appointment of Emmerson Mnangagwa.
Is this trajectory sustainable? Only if the changes are entrenched and made to bear real benefits through the implementation of robust economic policies, says van der Walt. In several African countries, efforts to diversify economies and stimulate lagging growth have borne fruit – Ghana, where economic growth stood at 9% during 2017 (a feat which is expected to be repeated in 2018 and 2019) is a case in point.
It’s worth remembering, though, that property is long term in its scope. Says van der Walt, “Property investors necessarily take a view spanning several years, if not decades. In many ways, this shields them from the more immediate effects of the vagaries of political and economic developments.” The exceptions, though, are the commercial and rental markets, which tend to be more reactive.
The lessons for investors seeking returns in the current market? The long-term view is what counts. Added to this, the more research conducted before an investment is made, the better. This includes research on the area where the concern is located, as well as the fund behind it. And, above all, it’s best not to expect a smooth ride.