Build the way forward in the commercial property market in South Africa!

 

Business rentals are not fading; rates and taxes are fading. In this weak economic environment they are rising bizarrely and this continued increase is unsustainable for the immobilizing industry," Estienne de Klerk, CEO of Growthpoint Properties and Chair of the South African Real Estate Investment Trusts (SAREIT), said in a website in the Think Big series of PSG today. The perception that commercial property is overpriced and that Covid-19's over supply results in a slump in rent yields is a trap of over-simplification. property for sale in qatar

He said property rentals in South Africa are very competitive, especially compared to other parts of the world. An office near the amazing Cape coastline or any of the South African major office nodes would have far higher rentals elsewhere in the world in a similar setting.

However, the competitiveness of South Africa as investment destination will be seriously eroded if the threats of land expropriation continue or come to light. Although it was unlikely that de Klerk would expropriate commercial property, any legislation in this area would have a harmful effect. "The reality is that any legislation on expropriation will completely undermine investment in the country."

The impact of Covid-19 on commercial rentals might not be so serious as supposed to be due to lock-down labor revolution in major offices. It may be somewhat offset by the need for social dissociation. "I know of a banking call center which has had three offices on several floors due to social distancing requirements."

Then, there is the fact that it doesn't fit everyone from home and often depends on the skills, seniority etc. of the employees. "Multiple activities in a working-from-home environment are not possible, such as mentorship, certain kinds of training, team building and motivation and components of the strategic process. Also many South Africans do not have a good IT infrastructure at home," he added.

De Klerk said the commercial real estate industry has been estimated to have lost rental income for the R6-8bn region over a lock-down period. Although not all the statistics are difficult to quantify, a look at REITs in the JSE Recent Financial Results demonstrates how difficult it was. "There are approximately 34 REITs with a present R360bn market cap that has halved over the last 6 months."

He added that because REITs have to pay their investors at least 75% of their taxable income, they do not retain huge amounts of capital. "In order to deal with this, legislation may need to be tweaked. When shareholders and debt providers obtain capital only, even if you are carefully oriented and property values start falling, it is very challenging for these companies."

"We saw massive disruption globally and the more heavily-targeted property companies have struggled. It does not matter who or what a company is, your balance sheet will suffer if you don't receive revenue for a few months."

Trade developments

 

Many large projects have been either postponed or cut completely, but fixed investment in the real estate sector has contributed well to South Africa's economy year on year and has also benefited from international diversification. "If you erode continued investment in any way, form or shape, it will be a death knell to the South African economy, from a legislative point of view," he said.

You must be an optimist to build with a view of 20 to 30 years. It's crazy to build on former gravel grounds in Sandton City, but we can't imagine Gauteng today without the great mall, the V&A Waterfront said in Cape Town. These great properties were also constructed in times of uncertainty.

"It's still about supply and demand in principle. There will be development if there is demand. Business developers could create new towns to attract buyers. Dubai is a good example. A good example. We have seen slow development in the South African context over the past five years, even though it continues," de Klerk said.

He confirmed an over-supply in the major property sectors, but that in the industrial property sector the least impact was felt. "You need a crystal ball to know what's next. All we know is that not every event in the short term is a long term trend. We have seen good demand for office space recently and certainly the sector has been outperformed during lockdown from a rental point of view."

"All the negativity has been priced on the short-term REIT share prices, and net asset value discounts are significant. These levels can be of great value in the medium to long term. Immobilien remains a key pillar of every investment portfolio of quality."

"If you want to talk about the property, Estienne is the man you talk to," said the PSG Asset Management CIO Greg Hopkins, who hosted the conference.

"The current environment is difficult to navigate and there is insecurity. When it comes to investments (in property or other asset classes), good financial advice is crucial to help you," concludes Hopkins.