A Few weeks ago 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. Many experts say this will have no impact on property prices, however, the market is currently in a transition period with momentum shifting towards the buyer.
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.So how does this impact South Africa?
South Africa is highly reliant on importation of goods, the effect on foreign currency could bring about further inflation pressure as the rand weakens.
According to experts quoted on Property 24, due to our depreciating currency, importation will cost more, and inflation will increase in South Africa, creating a repetitive cycle. We will essentially be importing inflation. Furthermore, 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.
The possibility therefore is that 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.
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.”
Adapted from an article that first appeared on Property 24
(Adapted : No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.)