Fuel price drop a boon to tourism sector


Fuel pumps

News Editor
JOHANNESBURG, (CAJ News) – THE imminent reduction in the price of fuel must be a cause of celebration to the property markets in South Africa.

The Department of Minerals and Energy announced on Monday that domestic fuel prices will be reduced considerably effective from Wednesday.

Both grades of petrol will decrease by R2,04 (US$0,12) per litre while diesel (0,05 percent sulphur) will decrease by 56 cents.

“Property markets should probably ‘mildly celebrate’ that oil prices that are well-off their recent highs, and domestic petrol prices that are coming down, with the global oil price spike this year looking like they are turning out to be less severe than the 2008 one” said John Loos, Property Sector Strategist at FNB Commercial Property Finance.

The oil price spike in 2008, where Brent Crude touched $150/barrel, was the main cause of South Africa’s pre-2008 housing bubble bursting.

Loos said the drop in the petrol price announced for consumers can be seen as a mild positive for property markets in a variety of ways.

“Granted, petrol is still expensive, and as such still keeps transport costs high, but every price cut helps.”

The price reduction is important in containing the magnitude of future interest rate hikes.

For retail property, petrol price reductions lessen the need for consumers to reprioritise consumer spend away from shopping centres in order to pay for a larger fuel bill.

“According to StatsSA retail sales data, year-on-year growth in fuel retail sales reached 29 percent in June, while Household Sector disposable income growth was down in single-digit territory.

Loos believes the recently high petrol prices may have slowed the post-lockdown pace of recovery in both holiday and business travel, and this in turn may have had implications for a battling hotel property sector.

The analyst said lower fuel prices would be welcomed by the hotel property sector, providing some additional support hotel incomes via boosting travel demand.

“However, to be meaningful, a few more petrol price reductions are probably needed.”

– CAJ News