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What next for the South African property market?

What next for the South African property market?

As experts predict Chinese woes could affect the South Africa residential market, investors are looking to diversify overseas.

Summary:

  • Chinese slowdown could have major implications for a fragile South African property market
  • Experts are not predicting the decline to be as significant as in 2008, but the South African property market does operate with a high level of indebtedness
  • Many investors are taking preventative measures and looking to diversify their portfolio in other territories, with the UK the logical choice

It will not only be investors in Hong Kong with a close eye on the Chinese economy.

Analysts across Southeast Asia are waiting nervously for signs of improvement in China, but the marked slowdown in the world’s newest superpower will have far-reaching consequences, with “significant potential implications” for South Africa’s residential property market.

John Loos, Household and Property Sector Strategist at FNB, recently explained China’s woes could have an indirect impact on South Africa’s fragile residential property market.

He said although South Africa’s household sector had lowered its debt to disposable income ratio from 2008’s high of 88.8%, at 78.4% there is still currently a high level of indebtedness. This situation is not helped by the fact that the country already had an economy of weak gross domestic product and China has also become South Africa’s major trading partner.

Despite the potential difficulties, experts predict the possibility of a hard landing in China will not lead to a 2008-type slide.

Back then, South African investors had to cope with a big consumer price index inflation surge due to the combination of a global oil price shock, global food price hikes and a very weak rand.

Even before China’s economic volatility came to light, many South African investors had taken steps to diversify their portfolio, looking at strong safehaven assets such as UK property investments to guard against major movements in their own domestic market.

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