South Africa will suffer if US property bubble bursts

Should the property market in the United States go belly-up, American consumers will dramatically curtail their spending and this will affect economies around the world, including South Africa.

The property bubble burst in Japan in the 1990s and danger signs are emerging that a bubble in the United States property market is about to burst, which could affect the South African equity and (listed and residential) property markets.

Paul Stewart, the chief operating officer of Plexus Asset Management, says there is strong evidence that a bubble exists in certain areas in the US. There has been too much investment in US real estate by builders and developers, and this has led to the supply of properties on the market outstripping the demand from buyers, Stewart says.

When there is an oversupply of rental property or, even worse, when owners cannot find tenants, fierce competition among owners for tenants results in rents falling and owners experiencing negative cash flows.