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How do election years affect the property market?

How do election years affect the property market?

MAIN IMAGE: Erwin Rode, CEO of Rode & Associates, John Herbst, CEO Fine & Country SA, and Chris Tyson, founder and CEO of Tyson Properties  

Staff writer

South African political parties are beginning to build on their marketing efforts to secure as many votes as possible ahead of the 2024 general election. Most are directly addressing how they will rescue the country’s economy, which is vital to the health of the residential property market.

There doesn’t seem to be significant research to prove to what extent an election has on the local property industry, but a general rule of thumb is that when an economy is good, consumer confidence is elevated, and that, in turn, stimulates a healthy buy-sell market. Therefore, looking at other nations’ experiences in their build-ups to a general election is prudent.

Elections and property sales in the UK

The UK is one such, whose residents go to the polls next January. Hamptons, a UK-based estate agent, presented a market insight report, and its results were somewhat unexpected. Working on the theory that people postpone moving home in the run-up to a general election, it was proven instead that there was typically a 2% increase in the number of homes that change hands during an election year, which, the report says, predominantly reflects a strengthening of the economy.

This data, useful or not, is not really comparable to South Africa, whose economy is expected to grow by 1% in 2024, says Investec, whereas the UK’s projection is 0,7%. What is pertinent is that the UK, like SA, is at risk of a recession.

Local interest

Seeking credible opinions from within our borders, we turned to Erwin Rode, CEO of Rode & Associates, property valuers, and economists, who produce a suite of property research publications. Rode says that the chances of an election year affecting the property market are negligible and that we should focus on the interest rate movement, which is not driven directly by politics.

“A major driver of residential prices is interest rates. In terms of the SA constitution, the SA Reserve Bank is independent, and the probability that the Bank would lower interest rates because of a phone call from the President is nearly nil. This is not to say that interest rates will decline towards the end of the year, but that would be after the election and for fundamental reasons. While sales volumes do tend to improve in lockstep with declining interest rates, residential prices are not directly affected in the run-up to an election”.

“What could change overnight, however, is the equity and bond markets,” Rode continues. “For instance, foreign buyers may return to our shores, or the flight from SA may accelerate.” He warns that “should the ANC be forced into a coalition with the EFF, it would be catastrophic for the economy and, therefore, for property prices. The effect of the alternative scenario, a coalition with the DA, is less clear-cut. This scenario may improve sentiment by South Africans and off-shore investors.”

We concur with Rode that focusing too deeply on the different political parties’ policies does not provide any clues about the type of government they will form. “In any event, any change in government policy would only affect the property market in the longer term.”

Real estate expert views

During this current build-up to the elections, and with no date yet announced – although likely during May – John Herbst, CEO Fine & Country SA, says that the pre-election phase often introduces heightened uncertainty in the housing market. “We must be careful, however, not to oversimplify this situation.”

Whilst acknowledging possible hesitancy among clients leading up to a general election due to uncertainties surrounding potential policy changes, Herbst highlights that Fine & Country’s live data feeds currently indicate ongoing buyer interest across all price segments and provinces. “This suggests that market activity remains robust despite apprehensions, reflecting resilience within the real estate sector”.

“However, the actual impact of elections on the real estate market can differ and vary widely based on a range of factors, including local market conditions and economic contexts. While some upper-income and international investors may adopt a ‘holding pattern’ until after the elections, the variability of this behaviour could also be province dependent.”

Regardless of whether the market experiences a temporary decline in home sales activity, and even if that is caused by apprehension about the unknown, Herbst says that he is optimistic that a post-election period will be characterised by certainty, stability, and a focus on economic improvement that could positively influence market sentiment and activity.

“It is essential to approach this period with optimism, acknowledge the market’s resilience, and recognise consumers’ ability to adapt,” he says.

Adding his perspective is Chris Tyson, founder and CEO of Tyson Properties, who says that although political and economic certainty are key factors that work to stabilise the property market, there are strong signs of a positive turnaround for the property sector this year.

“Key indicators are already pointing to the beginning of a shift from a buyers’ to a sellers’ market. However, one should not discount cautious buyers and sellers who will be waiting for election results to provide clear answers, hopefully putting an end to any fence-sitting, be that by policy-makers or property market stakeholders.”

In the meantime, and leading up to the elections, Tyson says the residential property market is still performing well and growing! “Banks are good indicators of the market’s health, and they still have an appetite for lending. The Cape property market continues to be buoyant, and there are signs of renewed interest in Gauteng, whilst KZN remains stable.”

Proof comes from increasing enquiries across Tyson’s national footprint, indicating that change is on the horizon. “We’ve entered 2024 with a far more positive outlook than 2023, and although challenges like energy and service delivery continue, we are in a far more optimistic market.

“Helpful will be the expected decline in interest rates,” emphasises Tyson. “It does appear that despite the Reserve Bank’s caution, there is a strong chance that inflation will soon return to more acceptable levels, as it has done in markets like the US and Europe. This suggests that the upward phase of the global interest rate cycle has ended and that local interest rates may follow suit.”

Tyson also believes that additional positive impacts on the market will come from solving the load-shedding challenges and more visible work on infrastructure and service delivery. “However, these require long-term solutions, with homeowners having to work smarter to ensure a quality of life, which applies immediately after the upcoming election.

“We are certain that there will be a meaningful but realistic recovery of all markets after the election when we return to business as usual,” says Tyson.

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