South African property market registers “noteworthy decline”

South African property market registers “noteworthy decline”

Poor economic performance and a weakening rand sees South Africa’s property sector fall in two international market reports.

Summary:

  • South Africa is one of two African countries to have registered “a noteworthy decline” in JLL’s latest Global Real Estate Transparency Index
  • A weakening currency and an economy on the brink of recession also caused South Africa to perform poorly in the 2016 Fragile States Index
  • Outflows of capital from the country are at their highest for a generation, with many investors looking to protect their money with high-returning assets overseas

The ongoing concern over South Africa’s economy, political uncertainty and a weakening rand are all having a direct impact on the performance of the country’s property market.

South Africa remains the most transparent real estate sector in sub-Saharan Africa for developers and investors. But this year, while countries such as Botswana and Zambia were ranked as “top improvers”, South Africa has registered a “notable decline” in its overall score according to the latest JLL Global Real Estate Transparency Index.

“It (South Africa) is the only country from the continent to feature in the ‘Transparent’ category‚ although it has struggled to maintain its global ranking in the last couple of years,” JLL commented.

The country also posted a lower overall score in the 2016 Fragile States Index. The report, published by the Fund for Peace, placed South Africa on a “warning”, citing the public concern over South Africa’s economy, which just recently narrowly avoided being downgraded to junk status by two ratings’ agencies.

It is these testing external economic and financial pressures that are beginning to hit South Africa’s property market hard. Noting in a separate report, JLL stated: “The currency depreciation is also telling of an outflow of capital from South Africa which is discouraging for the secondary investment market. Capitalisation rates are expected to be on the rise‚ reducing property values and contributing to a foreseeable decline in property values.”

Over the last 12 months growing numbers of investors have looked to move their money out of the country, in a bid to source rand-hedging assets in high-performing international markets. Select Property Group, for example, has seen a 200% increase in the number of South African investors buying UK property since 2014, attracted by the market’s diversity, rising monthly returns and a proven track record of capital growth.

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