In late November, the rating agency S&P downgraded South Africa’s local and international currency debt. As investors panicked briefly and the Rand weakened, the media was abuzz with reports about the economy and the problems that come with “junk status”.
While it’s easy to see the negative side of this downgrade, negativity is never useful when it comes to making a profitable investment in commercial property. The situation may be tricky right now, but there is reason to believe that South Africa’s credit rating may improve in the coming years – and until then, property may be one of the most stable investments of all.
Cape Town’s property market is as flexible as ever
Some industries find it difficult to thrive when the Rand is weak or fluctuates – but for the property market, a weaker Rand may be a blessing in disguise.
Cape Town’s property market, both residential and commercial, is an evergreen favourite among locals and foreigners alike. Overseas property investors who have confidence in the Cape Town market are perfectly positioned to purchase at the moment – precisely because the Rand has weakened against major currencies.
Where investors buy commercial property with a view to relocating their business to Cape Town, the overall result for the city is usually extremely positive. New businesses employ local people, act as new clients for local companies, and stimulate the economy.
As long as Cape Town continues to market its many strengths to commercial property investors, the credit downgrade may not be such a negative factor after all.
The reasons for downgrading SA won’t last forever
S&P, Moody’s and Fitch started downgrading South Africa’s debt about a year ago, giving similar reasons for their decision. These include:
- Slow economic growth
- Political uncertainty and high-profile cases of wasteful spending
- The government’s budget deficit and lower-than-expected tax revenues
Opinions vary as to how and why the country ended up in this challenging situation – but most experts lay the blame on the current leadership of the ruling party. With an electoral conference coming up in December, this is set to change.
If the outcome of the conference is positive, the ANC will contest the 2019 elections with a new leader whose first priority will be economic recovery. This should give investors the confidence to return to SA, with the Rand (and our credit rating) returning to normal levels.
Despite a string of economic bad news and downgrades, the Rand hasn’t fallen that much against major currencies over the past year overall.
Some experts are taking this as a sign that investors are reluctant to “dump the Rand” as an investment. Opinion holds that they are just waiting for a sign that the economy is back on track before they start investing in SA again.
Instead of dwelling on today’s challenges, smart investors always look to the future. If you’d like to take advantage of this opportunity to invest in prime commercial property in the greater Cape Town area, contact us today.