According to leading financial analysts and economic experts, the ever-growing risk of electricity supply disruptions could affect the residential property market in 2015. While it is expected that house price growth will be marginally higher this year than last year’s 7.1%, electricity supply constraints are likely to have a negative effect on the demand for property.
John Loos, a household and property sector analyst at FNB, pointed out that both the output and performance growth of the property market would be negatively impacted by electricity supply restrictions. He notes that the property market is largely driven by the state of the economy, on which the power crisis is having a devastating effect as with many businesses are unable to trade during blackouts.
President Jacob Zuma told South Africans at his State of the Nation Address that resolving the energy challenge is on the top of government’s list in order to ignite economic growth. He pointed out that the current energy constraints are a serious impediment to the economy experiencing any growth in the future. While the short and medium term plan involves improved maintenance of the Eskom power stations, the long term plan would involve finalising the government’s long term energy security master plan. He said that as a priority government would stabilise Eskom’s finances to enable the utility to manage the current period. To do this the government will honour its commitment to give Eskom around R23 billion in the next fiscal year.
According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, the electricity fee increases that have filtered through to the consumer will have an impact on both existing homeowners as well as those consumers who aspire to purchase property during 2015. “Despite lower oil prices, the increasing electricity tariffs will add further strain to consumers who are already struggling with high debt-to-income ratios and we could see this impact on the number of consumers who will be able to afford to buy a property. The electricity crisis will add to the cost of running a household as will any new increases in electricity prices that Eskom has requested,” says Goslett. “Even buyers who have the financial means to purchase a property might delay their decision to make the long term commitment of owning a property at this stage. The increased cost of living could have more consumers adopting the ‘wait and see’ approach when it comes to the property market.”
Goslett says that the higher cost of running a household could also result in a trend emerging where more buyers opt for smaller, more manageable and cost-effective properties. “Buyers are likely to find homes that won’t be as expensive to run and they may also put a higher emphasis on homes with green features or generators. Homes with alternative power sources such as solar panelling will be highly sought-after among property buyers in the years ahead,” says Goslett.
While the electricity crisis may have a negative impact on the property market as consumers hang back, this will increase the demand for rentals as consumers put their homeownership goals on hold. Although this is good news for landlords, the increased demand and higher utility costs could result in rental prices increasing exorbitantly over the next year.
There is also concern that the deteriorating power situation could keep foreign investors at bay, with the erratic power supply impacting on foreign buyer sentiment. “The fragile situation with the power supply is causing concern among businesses who don’t want to risk having a power problem that would impact their productivity severely,” says Goslett. “This sentiment is shared with many local investors and property owners, many of whom sold and emigrated after the start of load shedding in 2008. Continued power problems could potentially lead to a further drain in skills and investment capital.”
Editor: If SA follows the trend of overseas property then the installation of Solar Panels could very well negate the effect of load shedding and make the sale of a property that is Off-Grid or Grid-Tied a very attractive alternative that could demand a much higher price on the market.
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