Two ways downgrade can hit housing market

The potential impact of ratings downgrades on the South African housing market can be negative in two ways, John Loos, household and property sector strategist at FNB, told Fin24 on Tuesday.

Firstly, they have the potential to weaken the rand, which implies potentially higher imported price inflation, which in turn raises the risk of further interest rate hiking. This would dampen growth in housing demand.

Loos pointed out that the rand has indeed already weakened since the S&P downgrade announcement.

Secondly, fewer investments in South Africa as a result of downgrades could mean slower economic growth and job creation than would otherwise be the case. This, in turn, means lower household income growth and less purchasing power for houses.

Samuel Seeff, chair of the Seeff Property Group, said, while disappointed at the news of the credit downgrade by S&P, the threat of a downgrade has been looming the past 18 months.

“Although the latest political and economic shifts have been negative, the downgrade has in many ways already been priced into the current trading markets,” said Seeff.

“We, therefore, expect the property market to remain stable for the time being with any real effects only filtering through later in the year.”

At the same time, Seeff cautioned that one cannot ignore the actual realisation that “junk status” sends a major blow to consumer confidence and will have a longer term negative impact on the economy.

“We again emphasise the need for political and economic stability. For now though, there is no need to panic and it is not all doom and gloom. We expect business as usual for the property market,” he concluded.

Jacques du Toit, property analyst at Absa Home Loans, told Fin24 that it is still uncertain of exactly what impact the S&P downgrade will have on the economy and how it will work through to the property market.

“Levels of confidence will most probably be affected, which may be reflected in the property market,” said Du Toit.

2 thoughts on “Two ways downgrade can hit housing market

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