Can this week's political events impact heavily on the residential property market?

I have received some queries in recent days regarding the week’s political events, i.e. the re-calling of President Thabo Mbeki, and the potential impact on the residential property market. Insofar as such events create negative sentiment in and towards the country they are potentially negative for residential property performance. The direct impact can be in the form of higher emigration rates from the sensitive “suburban” markets, which are still dominated by the 3 minority population groups according to the Apartheid classification of race. Indirect impacts can occur when general investor confidence is negatively affected, which can have a negative impact on economic growth and thus on purchasing power for residential property.

As for this week’s events, they have perhaps created the perception of divisions within the ANC and a faction whose succession plan was not clearly in place (more at cabinet level and perhaps below as opposed to presidential level), especially given the temporary uncertainty surrounding Minister Manuel. But it is far from being a crisis, and reports seem to indicate that the process is being conducted constitutionally.

In terms of the impact on residential property, at present I believe that this market has far bigger fish to fry, that after Polokwane much of the political change taking place was already expected, and that the earlier leadership change for the country will not have a noticeable impact on an already weak market. Certainly the week’s political events are not expected to change an already deteriorating residential market trend which has included a rising portion of emigration selling since late-2007.
What will turn the weakness for the better? Most important will be the turn in the inflation (from late-2008), the interest rate cycle (expected in April 2009) and real disposable income (expected from early-2009).

In turning the currently rather negative sentiment, which has possibly enhanced emigration rates, 2010 is expected to play an important role, not only because it will prove the country’s organisational capacity. 2010 has also fast-tracked some of the country’s much-needed infrastructure delivery, and a visible increase in infrastructure completions is expected to provide the country with a perception of progress, and an economy “moving forward”, as opposed to a prevailing perception amongst many of stagnation.

In the mean time, the big news at present is probably emanating from the US with its fragile financial institutions. That’s where our major economic and local property risks arguably come from.

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