Advice and Opinion

Industry Response to the S&P Downgrade

S&P Global, has now downgraded the country to sub-investment or “junk” level. 

S&P previously rated SA’s foreign currency credit at junk and local currency debt at one level above, but on Friday announced it was dropping the local currency debt rating as well, and joining Fitch in giving the country a “stable” outlook. Fitch had already downgraded both types of credit to sub-investment level earlier in the year.

The third major agency, Moody’s, has decided to keep its ratings for both types of debt at one level above junk but placed SA on “review” for a possible downgrade in 90 days.

A couple of industry experts commented on the recent downgrade:

This means that SA has escaped – for now – a “total junk” situation in which major institutional investors would have been forced to immediately withdraw more than US$100-billion worth of investments from our economy.

From a real estate point of view,  the S&P downgrade will in all likelihood cause a drop in housing demand within the next few months due to falling employment prospects and rising living costs that make it more difficult for first-time buyers, especially, to qualify for home loans.

– Shaun Rademeyer, CEO of BetterBond

While the South African Reserve bank has left repo rates unchanged, South Africa’s credit ratings drop will have some negative effects on the economy. Prospective buyers may find it difficult to obtain credit in the form of bonds or home loans. Prospective buyers should not be despondent though. Banks are still lending provided that lending criteria can be met.
While foreign businesses may be hesitant to see South Africa as an investment haven, a credit downgrade will see a weakening of the Rand. This in turn means that foreign buyers will get more value for money when investing in South African Property.

The Western Cape, however, continues to buck the trend with property values unlikely to drop due to high demand and stock shortages.

– Mike Greeff, CEO, Greeff Christie’s International Real Estate