Small town South Africa - could it survive COVID-19 better than cities?

According to property economist, John Loos, some small towns in South Africa may be relatively well off in the wake of Covid-19 if compared to the average – and cities.

Loos, FNB property strategist, has said that virtually no part of the country will entirely escape the economic ravages of COVID-19, as it drives the SA economy into a deep recession. However, this might not be the case for those "off the radar" towns with economies reliant on agriculture and government money, which may move to lower lockdown levels faster, and with fewer worries about crowded spaces when they do.

“This is not to say they are unscathed, however, as certain retail and services businesses in these towns, deemed to be non-essential, would have been forced to temporarily close, so business and personal incomes would surely have been lost here too,” Loos said.

 

But the damage in larger centres, dependent on sectors such as retail, tourism, and hospitality, will be far worse.

Loos pointed out that some of the towns that could be in trouble include:

Holiday and weekend getaway towns

Towns like this are not only highly vulnerable to lockdown restrictions but also normal recessionary conditions.

They see a significant part of their business income, and thus employment, generated from the holiday and “getaway” tourism industry can be highly cyclical and vulnerable in normal recessions, and even more so in this “lockdown recession." Their holiday property, tourism, and hospitality industries were an obvious lockdown target, but even post-lockdown, these industries, and the towns they dominate, could be affected for a lengthy period, with the lagged impact of Household Sector Income loss through this recession forcing a “tightening of belts” and less holiday spend than prior to the recession.

"In the housing bubble prior to 2008, we saw holiday town residential markets hit highs in house price inflation far exceeding the cities, but the dip in those markets was more severe than the major cities, with that non-essential 2nd property buying being jettisoned by many in the tough times," he said. Adding that tourism markets could be expected to operate the same way, thus adding pressure on the Hotel and Accommodation Property Sector.

Popular “Retirement” Towns

Getaway towns, often country towns not too far from major cities such as Cape Town, can attract a significant retiree population. This can be something of a stabilizing factor for these towns’ economies, consumer markets, and retail, with middle to upper-income retirees normally having a retirement income stream that is not totally disrupted by any employment loss.

But such towns are often also getaway tourism towns, which can keep them highly exposed to a recession, the retiree population only being a partial consumer purchasing power stabilizer.

Many, but not only coastal holiday towns also are in this category and remain significantly vulnerable to the COVID-19 recession.

Popular commuter towns in the countryside

Commuter towns near to the cities, which can simultaneously be weekend getaway towns, can be vulnerable to a deep recession. Many of the incomes earned are from employment in cyclical industries in the big cities not far away, and not in the less cyclical sectors such as agriculture. And if those towns are dominated by industries such as real estate, tourism, hospitality, and retail, for instance, and not by agriculture, then they would have experienced a major part of their economy being locked down too

In effect, therefore, such towns can be seen as extensions of the cities.

Rural economies highly dependent on repatriated money

Many migrant workers in cities have lost their income or it is threatened, so the flow of cash back home will be interrupted, says Loos.

Mining Towns - where the mining isn't for gold

Mining is a highly cyclical industry, and many Non-Gold Mining towns could feel the impact on their economies from significant drops in global mineral demand and low commodity prices. While Gold mining towns have longer-term economic pressures, a relatively strong gold price through this crisis period suggests that they may not be at high risk specifically to this COVID-19 recession shock

Towns on major transport routes

Key transport and accommodation-focused towns on the major national roads, especially the N1 and N3, could feel a significant economic impact from a likely slow pace of traffic visiting these towns’ garage, food retail, and accommodation facilities

Read the full report and more property reports

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