SA may be in a “technical” recession, but a closer analysis of the figures released by StatsSA shows that the economy is actually heading in the right direction – and that the construction and real estate sectors are among those performing best.
The real estate market is currently described as a ‘buyers’ market’ because sales are slower overall and prices are static or only growing very slowly in most areas, and buying is exactly what investors should be doing now, not sitting on the fence waiting to see what everyone else is going to do.
Following the crowd is a bad idea
In property, as in any other economic sector, following the crowd is a bad idea, because by the time general sentiment turns positive, prices will usually already be moving upwards quite rapidly and much of the opportunity to maximise gains will be lost.
And that turnaround is only a few months away. The figures releases by StatsSA this week show that GDP declined by 0.7% in the second quarter of this year, compared to a decline of 2.6% in the first quarter. This means that the economy was actually already doing better in the second quarter, despite the effects of the VAT and fuel price increases that took place in those months.
In addition, the year-on-year figures show a GDP increase of 0.4% in the second quarter compared with the same period of 2017, which is minimal growth but at least positive. Now we are already two-thirds of the way into the next quarter and if those patterns continue, we could technically be in positive territory by the end of September.
Incoming foreign investment
Recovery will be bolstered as the recent foreign investment commitments obtained by President Ramaphosa begin to flow and the economic stimulus measures soon to be announced take effect. We are also looking forward to the investment summit to be held in October and to hearing what the finance minister has to say about policy going forward in his mid-term budget speech.
Meanwhile, it is interesting to note that the financial, real estate and business services sector, which accounts for 20% of SA’s GDP, grew by 1.9% in the second quarter, and that construction, which accounts for another 4% of GDP, was up by 23%.
This puts into perspective the much-reported fact that agriculture, which accounts for 4% of GDP, declined by 29.2%.
In addition, property investors need to keep in mind that SA still has a significant structural shortage of square meterage to accommodate our growing population, and that there is high and rising demand for decent rental housing close to city centres and other employment hubs because of the rising cost and inconvenience of travelling to work.