'Blackouts impact property growth'

South Africa's fragile labour relations and the increasing risk of electricity supply disruptions are a risk to the performance of the residential property market this year.

John Loos, a household and property sector analyst at FNB, said on Friday that residential demand was expected to grow further this year and FNB's house price growth forecast range of 8 percent to 9 percent was mildly higher than last year's average 7.1 percent.

But Loos stressed electricity supply constraints negatively impacted the output and performance growth of the property market, which was driven largely by economic performance.

Loos added that the powerdependent property industry was a noticeable contributor to gross domestic product (GDP), which was estimated at 6 percent of total GDP in 2013 and possibly nearer to 8 percent if residential and non-residential construction was added in. He said the residential supply constraining impact of power supply limitations remained a possibility, which could possibly boost property values.

But Loos said the electricity crisis had the potential to also impact on residential demand, adding higher electricity costs resulting from the electricity crisis implied higher home-running costs.

He believed this was a contributing factor to the shift over the long term towards small-sized homes in a bid to reduce operating costs, which contributed towards urban densification.

But Loos said what was of more concern was that the deteriorating power situation was likely to be more detrimental to residential property and the industry's performance via the negative impacts on the economy.

The most obvious impact of the power crisis on the economy was the direct impact on industry production each time the power failed but equally important was the less obvious impact the erratic power supply could have on sentiment and investment.

"Why would aspirant energy consuming investors want to put down their plants or outlets in a country where power supply appears increasingly fragile? The problem has even been highlighted by foreign ratings agencies as a key risk," he said.

But Loos stressed that in these times of heightened social tensions, the impact could go further and first hamper economic growth directly and then indirectly exacerbating the situation when weak economic growth further fuelled social tensions, causing still further economic disruption via industrial action and service delivery protest.

"Any negative impact on economic growth should normally imply an impact on household income growth and thus on residential purchasing power growth," he said. He said there was another less obvious potential impact from a skills drain out of South Africa.

If the electricity crisis fuels a heightened skills emigration rate through a negative impact on sentiment, this would further constrain South Africa's longer term economic growth performance over time and curb demand for property while increasing supply somewhat as emigrants sold.

Loos said estate agents reported a sharp rise in the percentage of residential owners selling to emigrate shortly after the first big load shedding "shock" in the thin residential market of early-2008.

"What has perhaps kept the emigration selling rate low post-2008 has been a global economy with a few subsequent years of high unemployment and more limited economic opportunity for would-be South Africa emigrants. But this can change," he said.

Business Report