2024 Elections: Shaping the South African Residential Property Industry?

The countdown to the 2024 national elections is on, with many South Africans eagerly awaiting the opportunity to cast their ballot and play a part in shaping the future of our country.

“This year’s elections are especially momentous because they mark the first time that independent candidates will be allowed to contest elections as individuals,” notes Rhys Dyer, CEO of ooba Group. “As a result, the IEC has now introduced a three-ballot voting system for the first time in our 30 years of democracy. These three ballots are the National Assembly ballot, the Regional ballot, and the Provincial ballot.”

From a residential property context, the increased prominence of independent candidates could see more local heroes on the regional ballot – for example, the person who spearheads the neighbourhood watch and is acutely aware of the issues facing his or her community.

“A greater number of independent candidates participating in this year’s elections could be good news for local homeowners,” explains Dyer. “These candidates are generally well-informed on the issues facing their community and what steps need to be taken to improve service delivery in the area, boosting property values in the process.”

However, while the outcome of the upcoming elections may result in positive changes for local homeowners, the lead-up to 29 May has left some would-be property buyers and investors feeling skittish.

The lead-up to a major election is always a time of instability and a heightened economic risk profile for the country in the eyes of foreign investors. As a result, some investors and buyers may be choosing to delay making any further investments or purchases until the outcome is announced. To add to this, the industry is already under pressure following the postponement of the expected start date for the interest rate cutting cycle.

How elections can influence property values

Of the three ballots, the regional and provincial ballots will have the greatest impact on residential property values, as these ballots determine who will govern a local municipality and be responsible for service delivery.

Property values are influenced by the overall stability of an area and inconsistent service delivery can make homeowners feel uncertain about the future. This negative sentiment can spread quickly, making homes in the area less desirable and thereby impacting demand and property prices.

Unfortunately, declining property values can generally have a domino effect, resulting in higher vacancies and dilapidated properties as more affluent homeowners choose to cut their losses and relocate elsewhere.

“Once the exodus of a certain area begins, crime levels tend to rise as criminals move in on abandoned properties, impacting the safety of homeowners who cannot afford to move.”

On the flip side, a well-run municipality with high levels of service delivery can strengthen investor confidence, resulting in better infrastructure, safety levels and higher values of properties within the area.

Interest rates remain the great determiner of property demand

While elections and changes to municipality leadership can have a significant impact on property values, interest rates remain the biggest determiner of price growth and market activity.

“Interest rate hikes reduce the demand for new property purchases, which in turn can lead to property values declining,” says Dyer. “Crucially, the next Monetary Policy Committee (MPC) meeting, where changes to the prime lending and repo rate are determined, will take place the day after the elections on May 30.”

However, interest rate fluctuations do not have a strong correlation to election results, as the South African Reserve Bank is independent of the ruling party. Instead, rates are determined by whether headline inflation is in-line with the target range.

The Reserve Bank recently revised its timeline for achieving the target headline inflation midpoint (4.5%) from the second half of 2024 to 2025, disappointing the property industry which has been calling for interest rate cuts as the most effective tool to restimulate the housing market.

The good news, however, is that the Reserve Bank expects headline inflation to moderate this year to an average of 5.1%. This should reduce pressure on consumers who are battling against the soaring cost of food and other essential goods. “Once inflation is curbed, the much-anticipated rate cuts should be implemented, bringing further relief to consumers.”

Dyer concludes saying that regardless of the outcome on voting day, the post-election period will restore a sense of stability and certainty in the market.

“We remain optimistic about South Africa’s huge economic potential, strengthened by the democratic process that is the foundation of our constitution. Once the outcome of the 2024 elections is announced, the focus will once again shift to economic improvement and improving service delivery to the country’s constituents.”

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