Will the economy rebuild?

Will the economy rebuild?

MAIN IMAGE: Andrew Golding, chief executive of Pam Golding Property Group; Gerhard Kotze, MD RealNet estate agency group; Philani Sangweni, managing partner, E4E Africa

A healthy real estate sector is highly dependent on home buyer and investor confidence that the country’s economy can be revived and made strong again. How did the 2020 Medium-Term Budget Policy statement (MTBPS) fare in this regard?

Only time will tell. Finance Minister Tito Mboweni said yesterday during his delivery of the MTBPS that with new data made available since June, the country’s economy is expected to contract by 7.8% this year – its largest shrinkage in nearly 90 years according to Lightstone. However, Mboweni also said that a debt crisis cannot be allowed and then set out the measures that government will employ to avoid this risk.

Infrastructure projects are central towards rebuilding the economy and creating more jobs. Mboweni said with the implementation of the government’s Economic Reconstruction and Recovery Plan, by 2021 the economy could grow by 3.3%.

Pent-up demand and a record-low interest rate has contributed to signs of a rebound in real estate sales, but property leaders are realistic that this will be difficult to sustain without the consumer and business confidence that comes from a growing economy in which new jobs are being created. The Minister of Finance hit the nail on the head when he said that it is not only investors who need confidence, but also the average South African, says Dr Andrew Golding, chief executive of the Pam Golding Property group. “Confidence and within that the key ingredient of positive sentiment, is a key driver of investment not only in the economy in general, but a critical factor which impacts the residential property market and its ongoing sustainability,” he says.

The real estate sector welcomes the prioritising of job creation through infrastructure projects. The MTBPS made mention of the allocation of specific resources to support the infrastructure development and mass employment programmes outlined by President Ramaphosa earlier this month, with R2,2bn going towards social housing (Flisp) subsidies and more than R340bn being made available to build new hospitals in KZN and the Western Cape, redevelop 12 harbours, build new schools and improve more than 3000 others, and construct new dams, roads and rail networks. “Unemployment is currently one of SA’s biggest problems and we hope that these projects will be implemented without delay and will really create additional permanent jobs, followed by increased demand for homes which will further sustain the real estate market,” comments Berry Everitt, CEO of Chas Everitt International property group.

It was also encouraging, Everitt says, that the Minister did not announce any specific plans at this stage for personal or company income tax increases, although the consolidated budget deficit is now expected to reach 15,7% of GDP this year, up from the 6,4% that was projected in February.

For Gerhard Kotze, managing director of RealNet estate agency group, other positives included the allocation of a further R2,2bn to the social housing subsidy scheme, the allocation of a further R7bn to the Land Bank and that cities such as Cape Town and Johannesburg will soon be allowed to source their own power. Also that almost 12MW of additional power from independent power producers will be available soon. “This will hopefully mean that loadshedding becomes a thing of the past,” he adds.

There is great concern however that government is continuing to bail out failing SOE’s such as the SAA to the tune of billions of rands. “SOEs have failed, and we cannot continue to spend on them,” says Simon Norton, Executive Director, International Zinc Association Africa Desk. He says the scarce finance that is available could be better allocated to finance passenger & freight rail upgrades and water works improvements. Everitt says the failing SOEs themselves, such as Eskom and SAA, remain the biggest drain on public finances, and obstacles to the private sector investment that SA really needs. “So, it makes no sense for the government to continue to give any further grants and bailouts to these institutions. The funds could be put to much better use to provide real support to small businesses and the business sectors that are the biggest job creators – and also to reduce SA’s colossal debt,” he explains. The country’s gross debt is currently equal to 81,8% of GDP (up from 65,6% in February) and is now only expected to stabilize at 95% of GDP in three years’ time. “This is an extremely risky position for SA to be in and it is going to take great fiscal discipline and determination to get out of it,” adds Everitt.

Philani Sangweni, managing partner, Entrepreneurs for Entrepreneurs (E4E) Africa, also expressed their disappointment that no mention was made of support for entrepreneurs beyond a promise to reduce red tape for business. “Entrepreneurs are our best hope for getting South Africa out of its economic malaise. If we’re not putting entrepreneurship at the heart of our economic recovery plan, how serious are we about it really?”

So, it is wait and see. As Golding notes, “while much remains to be seen in regard to the implementation of the government’s economic reconstruction and recovery plan, it can only be hoped that some measure of confidence will be reinstated as the financial year further progresses and trading conditions hopefully begin to normalise to some extent”.

  • James Otter

    The current situation is that real estate is following an upward trend because of an abnormally low-interest rate to help to revive the economy from the adverse effects of COVID19. The economy will gradually recover and normalise with a fairly high growth rate as it grows from a low base. Real estate will follow a flatter trend when it does in response to an increasing interest rate.

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