Property sales slow ahead of poll

The uncertainty created by the possibility of a coalition government is putting people off big-price buys

South African consumers are holding off on making long-term purchases such as homes, because of concerns ahead of the 29 May elections. The country is among the many that will be heading to the polls this year. But South Africa’s elections come with an added layer of uncertainty — the prospect of a coalition government.

Renier Kriek, managing director at Sentinel Homes, said South Africans are concerned about the outcome of the election and the likelihood that, for the first time in the country’s history, the national government will be led by a coalition.

“This creates negative sentiment that is also being fuelled by the heightened and increasingly populist rhetoric of competing political parties,” he said in a statement.

“And persistent factors, like the delay in interest rate cuts and a declining rand, only add to the doubt.”

But coalitions have worked in countries such as Finland, Germany, Ireland and the Netherlands.

“South Africa still needs to find its footing in any coalition pacts and develop the necessary protocols among participants intent on promoting their own interests.

“This means things will probably be noisy and messy for some time after the election as parties attempt to nail down the terms of their respective alliances,” Kriek added

He noted there has been a decline in residential property sales for the past 14 to 18 months. The market is down 25% from its peak in 2021.

The FNB house price index growth averaged 0.7% year-on-year in February, slightly lower than the 0.9% in January.

The bank said the low levels of house price appreciation should persist in the near term, amid still elevated living and borrowing costs, as well as heightened political uncertainty, both domestically and internationally.

“Elections in South Africa generally dampen sentiment and there are reasons for that.” Kriek said in an interview with the Mail & Guardian.

“There are populists who say outrageous things to rile up what they perceive as their voting base. Often the ANC does similar things, but it’s all electioneering. When that happens it spooks the market a bit.”

He continued: “But now that is amplified by the fact that we expect a coalition government. All of these kinds of things create uncertainty and so, in the short term, after the elections, there will likely be noise in the form of discontent.”

According to a recent poll by the Social Research Foundation — a think tank headed by former Institute of Race Relation chief executive Frans Cronje — the ANC could win 37% of the vote come 29 May.

The Democratic Alliance might receive 25%, The umkhonto wesizwe party could overtake the Economic Freedom Fighters with 13% of the vote. The Economic Freedom Fighters could receive only 11%. That survey had a margin of error of 2.2%.

Kriek said the “wait and see” approach taken by consumers mimics past patterns during elections.

This appears to have been the case during the 2019 elections. At the time, Ooba home loans said: “While the previous election result was market-friendly, it will still take some time for the housing market to recover from the usual uncertainty that accompanies an election.”

Consumers are not only hesitant about investing in property, they are also not buying cars.

Last year, motor trade sales decreased by 1.8% compared with 2022. The largest negative contributors were used-vehicle sales which decreased by 8.1% and new vehicle sales, which decreased by 4%.

During an interview with the M&G, Webuycars’s Faan van der Walt noted that there had been a decrease in vehicle sales.

“During periods of elections, consumers usually freeze and are inactive in their decision-making.”

Kriek said it was not possible to reduce the reasons for cooling property sales to a single factor — but election season certainly amplified existing headwinds.

“Interest rates have been high for some time now but they have maintained their level and people’s affordability has started to recover.

“The high interest rate environment is less and less of a factor in low property sale outcomes. It must also be something else.”

Kriek continued: “After the initial panic, people have adjusted and now we see the adjusted people coming back into the market. That is why it’s a buyers market.”

Interest rates have gone up 4.75% since the hiking cycle began more than 18 months ago. The South African Reserve Bank’s monetary policy committee kept interest rates on hold again last month as it signalled concern about inflation remaining stubbornly above the midpoint of its 3% to 6% target range.

“Currently, it’s still a buyer’s market for property and it definitely won’t turn into a seller’s market until after the election and a rate cut,” Kriek said. “Until then, we can expect that property price growth will remain low. Once the election outcome is known and provided we have avoided worst-case scenarios — and the rate cut is at hand — we can expect pent-up demand for property to spill into the market and significantly increase demand.”

John Loos, FNB’S property strategist said a lot of the bank’s commercial property broker surveys suggest that there has been a slowdown in sales activity in recent quarters. Sales have been lower in all three sectors: industrial, office and retail.

“The brokers cite a lot of reasons for this slowdown. Some cite a weak economy and a significant portion of them do cite elections. This manifests in investors being cautious as they apply the ‘wait-and-see’ approach,” Loos said.

He said the potential for a coalition was an uncertainty that wasn’t present in previous elections.

But Loos said the slowdown could not be blamed on election jitters alone because sales activity cools when the economy is weak and interest rates are high.

The International Monetary Fund recently slashed South Africa’s growth outlook to 0.9% for the year, down from 1%. Projections for next year have been reduced to 1.2%.

“With or without elections, sales activity in the property sector should slow at least until the interest rates start coming down,” Loos said. FNB expects rates will start to gradually fall from July.

At previous elections Loos said there were no major disruptions in the property market because there was a sense of which party would win.

In the last national election in 2019 the ruling party secured 57.5% of the vote, down from 62.15% in 2014.

“The last time a ruling party got below 50% of the vote was in 1989,” Loos noted.

“So a coalition would be a new thing but it would be difficult to say that the slow activity in sales is because of the uncertainty that comes with this election — especially when you have three or four negative factors coming together.”

‘During periods of elections, consumers usually freeze and are inactive in their decision-making’