If you ask any real estate investor that has been in the game for at least a decade, they’ll probably tell you that the South African market has been one of the hottest in the past few years. However, things are changing in the tip of Africa, and not for good. Projections for 2021 are not very optimistic about the financial state of South Africa, and there are two main reasons for that. Before I mention them, one must ask If an economic slowdown is a good or bad thing for the real estate market. Well, that depends on a few factors: the gravity of the financial crisis, the specific sectors who are affected by it, the depth and length of the investment you’re looking at, and so on. I am Ofir Eyal Bar, a real estate investor with over two decades of global experience, and my estimate is that the current events in South Africa are a sign to stay away from that market. I will try to explain why.
Can’t avoid the COVID Like many other countries recently, South Africa is marking peaks in daily COVID-19 cases again. Just a few months ago, it seems like things were going good for them, but now we’re looking at over 3,000 new infectees every day for the past week. Does this mean that another wave is on its way? Judging by what happened in other countries, it looks like South Africa is driving fast in that direction with no brakes. Add to that the fact that, as of right now, the South African government is taking very little measures to avoid disaster. Why is this situation different from other places? Mainly because the South African government isn’t showing much ability to take control of the situation. The public isn’t complying with restrictions set and enforcement is rare and insufficient. Politicians have lost the public’s faith, and therefore safety measures they decide upon are sometimes widely ignored. This is basically a recipe for a surge in the virus’ spread - the kind that may last a while.
A longer economic slowdown and period of financial instability is certainly a reason to reconsider investments in real estate. True, there is much talk of an upcoming vaccine to the Coronavirus, but poorer countries like South Africa are definitely not first in line to get it. That’s why my advice would be to look elsewhere for real estate investments, especially if you’re searching for something more ‘short-term’.
You don’t need to be a political analyst to notice a connection between municipal leaders (such as mayors) and real estate tycoons - the kind of connection that is not %100 kosher. As opposed to national-level leadership, which is exposed to supervision and criticism, a lot of what goes on in the city or town level is kept out of the light. That, of course, is a recipe for corruption.
In 2021 municipal elections will be held in South Africa. It wouldn’t be far-fetched to predict that a ‘you scratch my back and I’ll scratch your back’ relationship will take place between a few municipal leaders and a few key people in real estate there. Keep in mind that corruption levels in South Africa, as well as in its neighboring countries, are a cause for concern to begin with.
Bottom line is that investing now in a real estate project in South Africa is a risk, since chances are not slim that there is some kind of misconduct involved in its planning and execution - especially during election times. Sooner or later, these things tend to be exposed, and that can lead to major setbacks or even cancellations of projects. Oh, good luck getting your money back once that happens.
Having said all of that… All in all, it seems there are enough reasons to look away from the South African real estate market in 2021. However, every risk can also be an opportunity. If you choose your real estate venue carefully, you may not be affected by the virus and the elections, or they may even be a benefit for you. What I’m trying to say is that my advice is just that - advice and no more. I am Ofir Bar and my expertise as an investor in places like North America, Western Europe, the Far East, and South Africa have led me to the conclusion presented here. Having said that, nothing is certain in real estate - and anyone who tells you otherwise is being very dishonest.