Residential Property Sector Reaction: Moody's Downgrades

Reacting to the slew of Moody’s downgrades that sliced through the country’s financial sector and corporates as well as state-owned enterprises and local and regional governments, Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, commented that they were “the economic equivalent of the lower decks of the Titanic filling with water”.

“Crucial Cabinet portfolio changes and national policy statements this year have done little to encourage international investor confidence in South Africa and this news from Moody’s is a further setback to any prospect of economic recovery in the medium term.

“The downgrading of the IDC, Land Bank and DBSA are particularly disappointing, because economic transformation will be further stifled or at least substantially slowed. This is the opposite outcome to the intended objective stated by the government as the reason for its radical policy shift, and economists will no doubt view it as an ‘own goal’,” says Geffen.

“In terms of the real estate market, a more depressed national economy directly impacts the rate of job creation, further squeezes household finances, tightens lending criteria and puts the ability to amass general savings and mortgage deposits beyond the reach of even more consumers.

“FNB’s May House Price Index notes that year-on-year inflation for the month rose slightly to 4.7%, ‘but remains a mediocre market, and adjusting for CPI inflation implies a negative growth rate in real terms’.

“It will obviously take a while for this latest round of downgrades to have a direct impact on consumers, but they will feel it more and more the longer it takes for international investor confidence to be restored.

“This will only happen with a sustained demonstration of responsible macro-economic policy management and good governance – neither of which appear to be on the cards for now.”

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