Britain’s landmark vote to leave the EU was greeted by a macroeconomic shock that swept the globe with many countries suffering immediate economic consequences. South Africa’s economy, tied to Britain through both large scale FDI and various imports and exports, was especially affected, with the Rand subsequently crashing 9% in the wake of the announcement.
What does Brexit actually mean for commercial property in Cape Town?
The economic consequences of Brexit, namely, a depreciation of the rand and increased interest rates as the SARB attempts to combat inflation that usually accompanies such a currency depreciation, would seem likely to affect Cape Town more than other cities in the country due to the cosmopolitan nature of the city.
However, in what is a decidedly bittersweet turn of events, the consequences of Brexit shouldn’t actually affect South Africa’s economy and property market too harshly, as the newly induced macroeconomic forces resulting from the referendum actually already existed in South Africa prior to Brexit. Thus, although Brexit will undoubtedly exacerbate existing consumer concerns caused by a lack of economic growth within the country, and an already weakened rand, it shouldn’t actually shock the market in a major way.
Furthermore, the consequences of Brexit that have been evident in South Africa thus far appear to be driven more by pessimistic consumer sentiment rather than actual tangible economic factors. In fact the Rand showed significant improvement once the markets had been given time to settle following the announcement of the referendum results. This means that the economy and the Rand should improve further with more time, especially once the general uncertainty surrounding Brexit is resolved.
So what exactly can be expected in Cape Town’s commercial property market?
Firstly, increased interest rates will naturally make borrowing money for property relatively more expensive, while it will also be more difficult to secure credit from banks due to the general economic uncertainty in the country. Furthermore, many buyers, influenced by the pessimistic sentiment surrounding Brexit, could delay any planned purchase until stability has returned to the markets. So, although the financial means to secure property may become harder to come by and some purchases may stall, the actual value of property within Cape Town shouldn’t be adversely affected by Brexit.
All things considered, there can be no doubt that Brexit will ultimately be a bad thing for South Africa’s economy due to the close economic ties existing between the two countries. However, the economy and the Rand should improve relative to its current position once the general hysteria surrounding Brexit has subsided.
As things stand currently, Brexit won’t drastically shock the property market but will rather shift it further along the path it was already on due to South Africa’s economic difficulties which existed prior to Brexit.