VAAL Real Estate

Effects of general elections on Real Estate

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In economic terms, elections are categorized as political risks that will affect investments within a country. With every election, an investor should anticipate a change in political decisions that might affect their investment. Changing political decisions can have adverse effects on the profitability, and value, of investments in a country.

Elections generally mean a regime change. That is, the current political apparatus will be succeeded by another political apparatus that will have different economic, social, and political goals. The new political leader will likely change the country’s economic policies and this might negatively impact investment. For instance, the new government might limit government assistance in a sector or increase regulations in the sector. In both instances, operating costs in the industry are likely to increase and reduce investment returns. Other examples include the nationalization of industry, political instability, or expropriation that will adversely impact foreign investment.

What about real estate? The most notable concern is the political stability in the aftermath of a newly elected political leader. This is more so in emerging markets that have young democracies. In such regions, elections are characterized by political tensions and this leads to uncertainties for both investors and prospective buyers. As a result, no one wants to invest in developing a new property and no one wants to purchase new property. This is until the election cycle is over and political stability is assured. Over time, these political uncertainties are likely to scare away both property developers and buyers.

As with all emerging markets, Kenya’s upcoming election is pertinent given the accompanying political risk that might arise after the election. The country is a relatively young democracy in contrast to its Western counterparts. Despite this, Kenya is among the most stable democratic countries in sub-Saharan Africa and has become a model for African democracy. It is for this reason that the Kenyan election cycle is relevant to investors, both domestic and foreign, given the implications of the elections.

The upcoming general election does not pose any significant political risk to the country’s economy. Since 2007, Kenya’s political climate has stabilized and this has enabled to the country to conduct peaceful elections in 2013 and 2017. This also demonstrated that a regime change can often lead to peace and economic growth in the country. The 2022 general elections should be no different

Elections, especially in emerging markets, present an existential dilemma for foreign investors. This is due to the high returns that real estate has in such countries which might be offset by-elections. As such, it becomes crucial to factor in political risk associated with elections when investing in emerging markets. Investors should anticipate and plan their real estate investment with this in mind.

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