Last week Britain shocked the world by voting to leave the European Union. Many nations, including South Africa, are now asking how this decision will impact their economies and markets going forward.
With the UK a trading partner to a great number of nations, there is likely to be some effect, even if it is only marginal.
“In my opinion it will be interesting to see how Brexit impacts theSouth African economy, and more particularly the housing market,” says Adrian Goslett, Regional Director and CEO ofRE/MAX of Southern Africa.
“At the moment, everything is merely speculation as we are entering unchartered territory with no nation state ever leaving the EU. Since last night [23 June] there has already been an impact on foreign currency, which has been behaving extremely erratically.”
So how does this impact South Africa?
Goslett says due to the fact that South Africa is highly reliant on importation of goods, the effect on foreign currency could bring about further inflation pressure as the rand weakens.
“In short, with a depreciating currency, importation will cost more, and inflation will increase in South Africa, creating a repetitive cycle. We will essentially be importing inflation,” says Goslett.
“A sustained weakened rand will also place further pressure on the Reserve Bank in increase interest rates. There is no doubt that interest rates will continue to climb, which will also reduce potential home buyer’s affordability ratios. Home buyers will have to factor in the rising interest rates and ensure they have some financial cushioning.”
Goslett says the property market could see many first-time buyers holding back and adopting a wait-and-see approach until the full effects of Brexit on the South African economy are revealed. This is usually the case during perceived instability in the market.
“Another implication we could see is a rise in the cost of credit. Usually during periods of global economic uncertainty, banks become risk averse, tightening their lending criteria,” he says.
“As a result, access to finance becomes increasingly more difficult as more stringent global lending criteria are placed on the banks themselves. Not only will it be harder to get credit from a bank, it will more than likely be more expensive, which will impact on consumer’s affordability levels.”
Head of Home Loans at Standard Bank, Steven Barker, says that while it is too early to confidently predict the impact of the Brexit outcome, it has added further uncertainty to the South African property market.
“The consumer is expected to continue to face pressure on household finances in a rising interest rate cycle. Negative moves in the currency market could lead to higher inflation which could put interest rates under further pressure,” says Barker.
“We will have to wait to see how this unfolds, but consumer confidence remains low and the property market is starting to see a slowdown in activity. Lending activities by the mortgage providers is reflective of the interest rate cycle and the deteriorating economic outlook.”
Goslett says he believes Brexit will have no impact on property prices, however the market is currently in a transition period with momentum shifting towards the buyer.
“This is more a result of domestic conditions than any external foreign factors. The shift will cause property prices to be stagnant for the time being,” says Goslett.
“However, that said, opportunities often reveal themselves in times of change. Those who can identify the changing dynamic early on will be able to reap the benefits and take advantage of what the market has to offer.”