Property Market Making a Choppy Comeback

Property Market Making a Choppy Comeback

Private Property South Africa

South Africa currently presents something of a ‘mixed bag’ from a property perspective. So says Roy Lazarus, CEO of Park Village Auctions which, in addition to auctioning assets across the board also auctions properties.

“While some sectors are doing quite well, others are definitely under-performing,” notes Lazarus. “For instance, demand for residential property in some suburbs is quite strong, most notably in some of the country’s most affluent suburbs which hints at an impending upswing in this sector. High-end buyers are usually quite knowledgeable about property investment and tend only to act when conditions favour them.”

Demand for commercial property on the other hand remains fairly weak amid challenging market conditions which look set to remain for the rest of 2013 explains Lazarus. This sector is also somewhat over-supplied at present and large businesses are seeking to downsize and become more efficient which isn’t helping matters.

“The fact that the commercial sector is still struggling indicates that all is not well with the economy,” adds Lazarus. The economy’s lacklustre performance was recently underscored when the International Monetary Fund (IMF) downgraded the country’s growth forecast from 2.8 percent to 2 percent.

In terms of the retail sector, Lazarus says it continues to fare fairly well but that shrinking consumer spending and a drop in borrowing by households and companies in the face of increasing utility costs and inflation could well undermine this sector in the near future.

On the industrial front he explains that property fundamentals are improving but that cost containment in this sector may prove problematic going forward given rising labour, administrative and utility costs. That said, a “bright spot” has manifested in the form of fairly strong demand for quality warehouse space with investors prepared to pay a premium for efficient warehouses in prime locations says Lazarus.

Pockets of positivity aside, investment levels in general are not where they should be thanks to a number of factors. In addition to the constraints already mentioned, investors have to contend with a volatile exchange rate, weakening commodity prices, on-going violent strike action, record levels of unemployment, a rising trade deficit, continued uncertainty regarding property rights and land reform, high levels of crime, weak service delivery and political in-fighting.

The upshot, says Lazarus, is that many investors have adopted a “wait and see” attitude before committing to decisions and purchases until they have a better idea of where the country is headed. Lending credence to Lazarus’ comments is Grant Thornton’s International Business Report which recently revealed that up to 67 percent of private companies operating in South Africa are stalling business decisions until a clear political direction becomes apparent in 2014.

Notably, the report also cited South Africa’s high crime rate as a major deterrent to investment. According to the report, 61 percent of business executives, their staff or family of staff have been directly affected by housebreaking, violent crime, road rage or hijacking over the past 12 months.

A spinoff stemming from this scenario is that approximately 72 percent of business leaders who rated crime as a real concern reported increased security costs in their organisations. Lazarus says such costs can quickly become a significant financial burden and could well be perceived as excessive to investors who could put the money to better use in other countries.

“Overall it would appear that South Africa’s property market is recovering to some extent but that real challenges remain. It has become abundantly clear that fundamental changes need to be implemented across the board if the country in general and the property market in particular are to make a strong, sustained comeback.”


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