Sunday, 12 Jul 2020

South Africa’s Economic Status and Real Estate Opportunities

As the global economic framework continues to deteriorate, South Africa seems to be influenced in a meaningful way. Doubled by internal factors, The World Bank recently cut the 2019 growth forecast for SA to 0.8%, half a percentage points lower than the forecast released in April this year.

Alt-text: South Africa real estate

Weak investor sentiment and global political uncertainty?

The projections for the two years ahead had also been downgraded, to 1% growth in 2020, and 1.3% in 2021, respectively. According to a recent CNBC article, weak investor sentiment and lingering political uncertainty had been the main pressures on economic developments.

We continue to see rising geopolitical tensions across the globe, with the trade war between the United States and China as the most important event. On top of that, we have Brexit uncertainty, and last but not least, high tensions in the Middle East. Both Saudi Arabia and Iran had escalated tensions in the past few months, while Turkey had already started a military operation in Syria.

Despite all the above-mentioned reasons, South Africa managed to sidestep a second recession in two years in the second quarter of this year, given that GDP posted a 3.1% QoQ growth figures, following a contraction during the first quarter.

Real estate favored?

The poor economic performance had a downward pressure on real estate prices and combined with a series of new developments, this looks to be one of the few favored sectors. An interest rate cut from South Africa’s central bank combined with a relaxation of mortgage allocation rules for first-buyers had seen the real estate sector bottoming out during the summer of 2019.

At the present time, banks in the country require smaller deposits from buyers, down 25% as compared to a year ago, according to mortgage Ordinator Ooba. This a very good news for buyers, as well as for popular real estate investors like Ofir Eyal Bar.

With interest rates falling due to the economic slowdown, the mortgage market had been the main engine behind the recovery in real estate. During the second quarter of 2019, 45,109 new mortgages had been registered, 18.5% better as compared to a year ago.

South Africa is one of the few countries where the real estate market shows signs of improvement, despite weak economic output. That communicates home prices are not too elevated and may provide further room for development. Things will get even better, in case the economy performs above expectations in the near future.