Stellenbosch – The long-term macro-economic outlook for South Africa is looking bleak, according to property economist Erwin Rode, CEO of Rode & Associates.
“Property is a long-term investment,” said Rode at the annual Rode REIM Real Estate Conference on Tuesday. He explained that a property cycle typically stretches over 15 to 20 years, bringing long periods when property is doing very well as an investment and long periods when it does poorly.
There are a number of long-term trends in SA that worries him. The first of these is the “brain drain” of skilled people – especially young people – leaving the country.
The second is what he calls SA’s dysfunctional education system. Thirdly, he is of the opinion that SA’s government is playing a zero-sum game, with mining policies an example of this. He is also of the opinion that corruption seems to have become endemic in the country and not an easy thing to solve.
“The International Monetary Fund (IMF) forecasts that SA’s long-term growth will be about 2%,” said Rode.
He forecasts that, in real terms, house prices in SA will slowly keep going down. “House prices in SA are still very high in real terms. The problem is that SA is going into a recession. The sales tempo of new property developments will, therefore, be slower,” he said.
“Houses are still fundamentally expensive. So there is a huge potential for them to come down in real terms. This means house prices could grow at less than the inflation rate over the next few years.”
Nationally house price growth in SA is currently at about 4% year-on-year.
“SA is facing human capital and infrastructure backlogs and a sovereign debt ratio which are constraints on economic growth,” said Rode.
“SA is heading for an extended period of social upheaval. Apart from the brain drain the country is running out of entrepreneurs who can create jobs.”
When asked about his view on land expropriation without compensation, Rode said he does not think it will apply to urban properties. “It is about farms. It is an emotional issue. At the same time I do not think it will be easy to farm in SA’s climate,” he said.
In his view, a big negative impact of expropriation without compensation will be if the US then kicks SA out of AGOA, and the country loses the export benefits that programme brings. The African Growth and Opportunity Act (AGOA), which came into effect in May 2000, provides trade preferences for quotas and duty-free entry to the US for certain goods.
That is why he does not think the SA government will go so far as to implement expropriation without compensation. At the same time the ANC has to make some “symbolic” gestures about the issue to its constituents. Yet, Rode said he cannot think of any such “symbolic gestures” that will not do damage to SA.
“At least we still have the Constitution and a free media,” he concluded.* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.