Weak Economic Conditions Weigh On SA's Housing Market

By Janice Roberts

A weak macroeconomic environment, still-high household indebtedness, and rising interest rates burden the South African housing market, said S&P Global Ratings in a report published today on
RatingsDirect, entitled Weak Economic Conditions Are Weighing On South Africa’s Housing Market.

“Residential property prices stagnated in real terms in 2016, as above-target inflation eroded nominal price gains, and construction activity has been soft,” said S&P Global Ratings senior economist Tatiana Lysenko. “Home prices improved at the end of 2016 as financial conditions stabilized. Still, subdued economic growth, persistent very high unemployment, and elevated consumer
indebtedness do not bode well for the South African housing market in the near term, especially if interest rates continue to rise, as our baseline scenario anticipates.”

S&P Global Ratings considers that a range of negative shocks that dragged down GDP growth in South Africa, such as falling commodity prices and a severe drought, have run their course. Nevertheless, longstanding structural constraints, such as a skills shortage and rigidities in labor and product markets, still hold back economic growth. Political tensions remain high, weighing on the confidence of domestic and foreign investors.

“Therefore, our expectations are for subdued growth of 1.4% in 2017 and 1.8% in 2018. This means that, in per capita terms, South Africa’s real GDP growth will only move into positive territory in 2018.”

S&P Global Ratings projects muted nominal house price growth of 5.5% in 2017, which would imply stagnation of home prices in real terms. “We forecast nominal home price growth of 6.5% in 2018.”

Ms. Lysenko added: “We expect continued strong structural demand for better-quality housing from
South Africa’s young and growing population and rising urban middle class… Meanwhile, the softness in the construction sector is exacerbating the housing supply shortage in South Africa. This supply-demand imbalance should support prices in the medium-to-long term.”


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