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
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    • 18 Jan 2018
      New year, new goals! If you’ve resolved to purchase your first property in 2018, then this 6-step guide from the Rawson Property Group is a must-read. It will help you navigate and simplify what is often be seen as a confusing process of buying your first home – right from the house-hunt to the house-warming.
    • 17 Jan 2018
      While the current property market may still favour buyers, it doesn’t mean that they shouldn’t be well prepared before putting in an offer to purchase.
    • 17 Jan 2018
      Lightstone lists Blair Atholl as the most expensive suburb with an average house price of R11.2 million, followed by Westcliff (R10.5 million), Dunkeld (R9.3 million), Sandhurst (R9.1 million) and Inanda (R7.2 million).
    • 17 Jan 2018
      As it currently stands, there are four main ways in which a home can be bought in South Africa, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who adds that deciding in which legal entity to purchase the property is not a decision that should be entered into lightly, as each has its pros and cons.
        
    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