Weak rand to hit housing market

Property experts have warned that continuing weakness of the rand will have a significant “downside risk” to residential property market performance as this will translate into a rise in inflation and higher import prices.

Despite the strong comeback of the rand to R10.96/$ in the early trading yesterday morning, the local currency retreated back to R11.12 against the dollar by midday.

FNB property analyst John Loos said given that 2013 ended with various residential property numbers looking positive, further weakening of the rand could derail that momentum.

“The rand is seen by many as the ‘share price’ of South Africa, and radical depreciations can bring about an air of gloom in the country. The most recent bout of broad rand depreciation has been a sustained one too, lasting all the way back to 2011, and it may be starting to ‘wear us down’,” warned Loos.

According to Loos, this brings about the first possible impact of a weak rand on residential property, when sentiment has a possible dampening effect on domestic home buying, although it is near impossible to determine at what point this may or may not happen.

“The potential impact of the rand towards property will be via imported goods and thus on interest rates, because the residential market is a highly credit-dependent one.

“As a result, given the debate about the possibility of interest rate hikes being brought forward in 2014 will make home buyers more cautious if we have earlier interest rate hikes,” he said.

Loos said a weaker rand will certainly exert upward pressure on domestic inflation via the prices of imports.

A leading property analyst, Erwin Rode, said South Africa’s double deficit such as the national budget and the current account, including some other international trends over which we have no control, has the potential to force the country into much higher interest rates in the wake of a tumbling rand.

“The higher import prices, leading to rising inflation and higher interest rates will put the consumer under even more pressure than what we already have.

“This cannot be good for the housing market, especially the residential segment,” warned Rode.

Rode cautioned that houses should not at present be seen as an investment that would yield capital growth in the medium term.


Article by: www.thenewage.co.za/

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