The rand took a pummelling when the UK voted by a small margin to leave the 28-member trading bloc last month. Fears of additional economic fallout for South Africa remain widespread. However, the rand has since recovered, and the SA Reserve Bank opted not to raise interest rates. This is great news for property buyers.
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.
Developments in South Africa, such as sluggish growth and unemployment, place a greater strain on the property sector. The Brexit vote has introduced a degree of uncertainty about the economic trajectory in 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.
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. 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. 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. Think of someone who took out a bond in the 1990s. It would be coming to an end now. We’ve seen big swings over the that period. Interest rates went to 24% in 1998. At the moment nothing so near so dire is on the radar.
