The global economy's effect on the local property market

The global economy has been hit hard in recent months. Rising fuel prices, interest rates, and inflation levels have put a strain on households across the globe. South Africa will undoubtedly feel the effects, but experts feel confident that the local housing market will remain resilient against this challenging backdrop.

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, explains that one of the perks of belonging to a global brand like RE/MAX is that it allows him insights into the challenges other regions face. One of the hardest hit by the current global economic crash is the USA where the RE/MAX headquarters can be found.

“The USA has had a long run of a red-hot property market. House prices have been rising at unprecedented levels and sales soaring. In some places around the USA, it has been almost impossible for first-time buyers to enter the market because of this phenomenon. But, recently, things have changed. Wall Street has taken a significant knock on the back of a steady decline this year and this has begun to filter into the real estate market. You only have to look at how the market cap of some listed real estate firms has been eroded,” says Goslett

For example, Goslett explains that since the beginning of this year, Nasdaq overall has taken a hit of around 25%, while ‘tech-aligned’ listed real estate firms have taken hits between 45-60%. “This is happening off the back of inflationary fears and will hit the USA doubly hard as they have been accustomed to such a strong market for such a long period of time,” he states.

“There is no doubt that South Africa will feel some of the pressure being created across the Atlantic and from other parts of the world as well. But, my prediction is that the South African property market won’t be hammered quite as hard as the US property market. This is because our housing market has not seen the same kind of spike as theirs experienced so we don’t have as far to fall as they do.”

Secondly, Goslett adds that “corporate America has been investing in real estate with their massive capital reserves, but with stock markets having dipped by an average 25%, it would seem that some of that money is now being pulled and along with it, some of that investment in real estate. The South African real estate market does not face the same risk,” he explains.

But, Goslett also says that it is not worth spending too much time wishing for a certain outcome. “In times like these, we simply need to ensure that we put ourselves in the best position to take advantage of whatever situations with which we may be presented. Before we are hit too hard, set money aside to get you through the storm. That’s not to say the storm will hit, but if it does, at least you will be prepared to weather through it.”