select
|

How a sub-investment status may impact the property market

“Pay down short-term debt and consolidate long-term debt,” says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
 
Moody’s Investors Service rating agency recently affirmed the country’s status at two notches above sub-investment or junk status, but gave the country a negative outlook. While it is good news that the rating was not downgraded, we are not out of the woods just yet. Moody’s is only one of three rating agencies that will be reviewing the country’s credit status to determine whether the rating will be downgraded to junk status, with Standard and Poor and Fitch still to conduct their reviews. The decision will largely be determined by the policymakers’ ability to implement a strong medium-term strategy that will rein in the government’s debt growth.
 
Goslett says that if the country is downgraded to junk status it would have a negative impact on consumers and the property market as a whole. “Essentially the country’s rating impacts the cost of credit. A junk status will mean that it will cost more for the government to borrow money, which in turn will have a knock on effect on the consumer. Financial institutions will need to hold more money in reserve, which will make it more difficult to obtain credit, and the credit that is granted will come at a higher cost,” says Goslett. “A marginal mitigating factor is that to some degree financial institutions have already made provision and priced in the effects that a downgrade would have on credit costs.”
 
He adds that the higher cost of credit will curb the demand for big ticket items such as property and motor vehicles. “Those who wish to enter the property market are already dealing with increasing interest rates and higher food and electricity prices, so an increased cost of credit would place further strain on consumers who are already feeling the effects of the growing cost of living,” says Goslett.
 
According to Goslett a junk status will also keep foreign investment at bay. “If South Africa is downgraded, foreign investors will see this country as too risky and will avoid investing here. With less demand from foreign investors, the prices of our assets will depreciate, along with the currency. If the rand falls further, it will cause inflation to increase, which will place more pressure on the interest rate and the cost for goods. All of this will only cause the cycle to repeat itself and make it that much harder to dig our way back out of junk status. According to economists, it will extend the electricity crisis and lock the country into a low-growth pathway,” says Goslett. “It is far easier to maintain an investment status, than it is to improve the status once it has been downgraded. Research concluded by Rand Merchant Bank reveals that on average it takes approximately seven to eight years for a country to recover from a downgrade.”
 
Goslett notes that if the South Africa continues on the path of low economic growth, it will impact the country’s ability to maintain and upgrade infrastructure – this at a time when the country is already experiencing power shortages. “We will also see less development due to lack of demand and the fact the developers will struggle to gain access to the necessary financial backing,” he adds.
 
“For the sake of the consumer and country as a whole, it is imperative that a downgrade is avoided at all costs. The government will need to fully commitment to cutting spending and boost the country’s position to pay back debt. Consumers are urged to prepare themselves financially by reducing their own debt levels and putting away savings,” Goslett concludes.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 20 Apr 2018
      Whenever changes in the political ecosystem of a traditional property market create uncertainty, smart investors begin to look elsewhere for new opportunities. Property experts at IP Global have analysed the trends and crunched the numbers to find new markets to explore in Europe and the United States.
    • 20 Apr 2018
      Energy and water self-sufficiency are increasingly important factors in home buyers’ choice of property – especially in Cape Town where the extreme drought of the past few years has made municipal supply costly as well as uncertain.
    • 19 Apr 2018
      During the last decade, rampant development has progressively transformed Cape Town’s property landscape with densification being the order of the day, but there are still one or two hidden gems like Scarborough which have retained their original character, offering an inimitable lifestyle and an attractive investment opportunity.
    • 19 Apr 2018
      The rental market is a cut-throat sector of the real estate market that waits for nobody. According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, first-time renters need to be fully prepared before they even start the process of looking for a place to rent in order to avoid the disappointment of losing out on their ideal property.
    • 19 Apr 2018
      Choosing to buy your first home instead of continuing to rent is a big decision that will usually take some time to put into action, but the sooner you can save up a sizeable deposit, the closer you will be to reaching your goal.
    • 18 Apr 2018
      Selling your home is no small task and as you will quickly find out, there are a lot of misconceptions about the process. Gerhard van der Linde, Seeff's MD in Pretoria East lists the top 5 misconceptions when you are selling your home.
    • 18 Apr 2018
      The Cape Town municipality is now installing water-management devices at properties that have been non-compliant with the new level 5 water restrictions and there are talks of fines between R5,000 and R10,000 for households that use too much water.
    • 17 Apr 2018
      The recent interest rate cut has stoked the coals in the first-time buyer’s market. At least for the next two months until the next interest rate announcement, homeowners are guaranteed lower monthly instalments than in the previous quarter. But, is it wise to take out a 100% bond just to enter the property market while interest rates are low?
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK