Predictions for 2019; Land expropriation, interest rate hikes and a buyer's market
During 2018, the commercial and industrial sectors experienced its fair share of volatility as a response to changing economic and political factors. At the beginning of the year, the rand strengthened in the wake of Cyril Ramaphosa's appointment as the leader of the ANC. This boosted investor confidence and optimism filled the markets.
However, the change of leadership was not enough to sway the wave of negative sentiment that followed shortly after - grossly mismanaged state enterprises, discussions around land expropriation, political infighting and a technical recession were all factors that negatively affected the performance of the commercial and industrial sectors.
And, yet, in spite of all these factors that threaten to hamper growth, 2019 will benefit from certain favourable conditions that will bring stability, optimism and continued investor support.
Going into 2019, many analysts expect a "wait and see" attitude adopted by investors as they will make calculated decisions depending on the political and economic climate. In particular, the way in which the government handles the land expropriation issue will be an important deciding factor.
Currently, the National Assembly has adopted the constitutional review committee's report recommending a constitutional amendment to expropriate land without compensation. The go-ahead took place on December 4 and this means that parliament can start a process of amending the constitution, but it will still be a while before it becomes official as legislation. Fortunately, this move did not affect the country's credit ratings.
Most economists agree that if the country continues to handle the land issue with policy certainty, stringent adherence to the rule of law and the enforcement of contracts, then commercial and industrial investments will not be significantly affected.
In fact, the rating agency, S&P Global, explained to Fin24 that SA's institutional framework, which includes a constitutionally independent judiciary, will safeguard the country from a high percentage of investors pulling out. However, it has warned that the policy would likely lead to some businesses reconsidering investing in the country.
Ultimately, S&P Global will only consider lowering SA's credit rating if the rule of law, property rights or enforcement of contracts were to weaken significantly.
Interest rates are predicted to rise in the new year and this may pose a threat to the commercial and industrial sectors. This year saw small adjustments implemented as the repo rate increased by 0.25% to 6.75%, and going into 2019 many economists expect another hike.
The repo rate is an important factor to consider when dealing with growth in the commercial and industrial sectors. This is because the rate determines the way commercial banks charge us, the consumers, for a range of financial lending services. When the repo rate rises, as it is now, it means that the lending rates for investors and businesses are less affordable, and this makes it harder to pay off existing loans or take out new ones. For 2019, the rising rate will lead to more cautious businesses and investors as they will feel less incentivised to take out property finance.
On a positive note, in 2019, those who are quick to buy commercial or industrial properties will greatly benefit from well-priced property due to the existing buyer's market, which will encourage buyers to negotiate towards their preferred price. We can also expect to see most sales activity taking place among end-users who will capitalise on using their negotiation skills to secure properties at a good price.
Overall, 2019 will be a year where many will closely monitor the economy and political activities, particularly around interest rate hikes and land expropriation. But, overall, those who can afford to take advantage of more affordable property prices should do so before the market shifts into one that favours sellers.
Author: 3CUBE Property Solutions