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How loadshedding affects the residential market

The hows and whys of loadshedding and how it affects the property market.

There are so many conflicting reports about why Eskom has re-introduced the blackout days of 2015, that it’s hard to climb through the mire to the absolute truth.Among the reasons for loadshedding are: corruption and mismanagement of Eskom; age of the power stations causing frequent breakdowns; design flaws in the Medupi and Kesile power stations; Mozambican tropical cyclone Idai affecting SA power supply; capital expenditure shifts due to state capture at Eskom impacting on maintenance budgets; lack of available diesel to use in an emergency when coal-fired generators are being repaired; and boiler leaks due to the use of poor quality coal.

Whatever Minister of Public Enterprises Pravin Gordhan’s investigative team eventually reveals as the root cause of Eskom’s re-introduction of loadshedding, South Africa lost some R12 billion over a three-day period in early March. Energy experts are also predicting that the economy will be affected by at least a loss of R1 billion a day at stage four loadshedding.

Residential market negatively affected

While all industries are being impacted, the effect on the residential home market, analysts agree, is a negative. John Loos from FNB says there is a spiraling decline: “The disruption of economic output impacts on employment, which in turn impacts on household disposable income growth.

“Worse is that loadshedding is a sentiment dampener, conceivably lifting concerns with regard to the country’s long-term economic future, and this may play some part in an already elevated emigration rate of late; emigration-related selling means more supply of homes on the market.”

Jacques du Toit, also a property analyst, from ABSA, echoes this belief. “It is quite possible that people who are in a position to emigrate and have been considering this for some time will now take decisive action in this regard, which may eventually cause an additional number of properties up for sale. Such properties may be good value for money as such owners would want to sell within a certain period of time.”

Although this might be encouraging for local buyers, it doesn’t necessarily translate similarly for global investors looking to buy a second home in South Africa. Loos believes that the wealthier investor would not be put out by loadshedding because they have the resources to buy alternative energy supplies but it’s the bigger picture that must be considered. “Overseas investors in this economy may well be discouraged to invest in any form in South Africa, meaning less foreign expats being employed here and therefore less potential of their buying homes.”

Alternative energies present premium sale opportunities Du Toit concurs with Loos, adding that loadshedding is overall a detriment to the country’s image and is a factor that may impact on international buyers. Loadshedding has however escalated South African residents interest in alternative energies to power up their homes. Solar is an obvious energy resource but the return on investment (ROI) can be years long and in the current economic climate, not many have the capital outlay to hand. Ultimately though, as Du Toit points out, such installations will “likely enable homes to be sold at a premium purely as a result of being able to avoid the inconvenience of loadshedding, plus the environmentally-friendly aspect of solar.”

Bottom line is that there is more likelihood that alternative power sources add value to a home based on Eskom tariff hikes than on loadshedding, which will enhance the financial viability of systems like solar.

No suburb is safe

For residents that remain dependent on Eskom power, loadshedding might be touted as a highly controlled process, but there remains controversy around whether Eskom is sticking to the schedule it publishes. Loadshedding often appears to be at whim, compounded by any number of sub-station crashes. The unpredictability causes anger and abuse on social media. No suburb is safe, so for those locking to relocate based on rumours that certain areas are not prone to severe loadshedding might be trading one evil for another.

“I don’t think many people are really looking to relocate or buy specifically in another area due to the level of loadshedding,” says Loots. “It would be too costly to buy and sell homes on this basis, but what might gain in popularity are homes in older suburbs that have piped gas, providing a lesser dependence on Eskom electricity on a permanent basis.”

It’s not really possible at this early stage of loadshedding to really determine the impact of loadshedding on residential sales except to apply some logic, as Du Toit does when he says: “It may cause a delay in buyers’ decisions to transact in property.”

In the current economic climate, with temperaments already abnormally sensitive, and with Eskom’s loadshedding potential to affect water supply, homeowners are directing their frustration at the government and local power suppliers. Loots however, remains level-headed: “It is important to remember that loadshedding is only one of many negatives in the economy, so it isn’t possible to isolate Eskom as the major issue.”