Housing in Southern Africa April 2015

Housing

Owner-occupier investment drives growth Business owners continue to purchase commercial properties at levels experienced in 2012/2013. T his is a vote of confidence in the future of our country’s commercial property market,

with investors rather than owner- occupiers taking the leadon commer- cial property purchases. The Eastern Cape market is dominated by a few large investors. This makes entry into the market in the Eastern Cape difficult for smaller owner-occupiers and investors in the region.” The Mozambique Corridor, where significant government and mu- nicipal spend has taken place, has encouraged the growth of business and stimulated activity in the owner- occupier sector. “The same dynamics apply near the Coega development area in Port Elizabeth, and industrial develop- ment zones that have been estab- lished in East London in the Eastern Cape, as well as the Dube Trade Port near Durban’s King Shaka Interna- tional Airport,” says Webb. “What will continue to drive in- vestments by owner-occupiers is the fundamental difference that exists between landlords and business owners looking for a sound invest- ment. The investor needs to weigh the cost of the purchase or build- ing project against rentals that can be achieved.” ■

issue presently impacting the sales of commercial properties is the cost base related to municipal rates and energy increases that in many cases have outstripped the growth in rent- als. Where rentals have been low, many potential purchasers of build- ings have held back from making an investment when viewing energy and rates costs.” “Where businesses are owner- occupied, they have taken advan- tage of various subsidy schemes on offer to reduce energy costs. Typically, ‘greening’ their buildings has involved retrofitting lighting systems and obtaining cost-efficient equipment such as electric motors. It is more difficult to achieve these operational savings when premises are rented and the landlord has to shoulder some of the cost burden involved.” “Aswastobeexpected,theprimary area of activity in the owner-occupier segment during 2014 was Gauteng. In KwaZulu-Natal, the commercial property market is fairly even- ly split between investors and owner-occupiers. The Western Cape i s f u n d a m e n - tally different

says Brett Webb, Head of Specialised Lending: Specialised Sales and Com- mercial Markets at Standard Bank. According to Webb, “Despite the downturn in the economy and ex- pectations that interest rates will increase further in 2015, clients are still buying property, but becoming more selective in their purchasing patterns. To date, negotiated ‘owner- occupier’ transactions are in linewith 2012/2013 figures and experienced a 44% upsurge.” The specialised lending portfolio includes propertiesworthaminimum of R5 million and clients with a mini- mum turnover of R10 million and a maxim turnover of R1.2 billion. The typical property purchase agreement is for a period of 10 years. Buyers typically borrow between 70 to 75% of the property’s value - the owner- occupiers equity contribution being driven by factors such as demand for the property etc. One of the strong factors driving the owner-occupier market is that a combined view is taken on the client and the property to determine the client’s level of equity contribution where a purchase is concerned. “There is no doubt that owner- occupiers are taking a longer-term view of the market and are making property investments only when the stability and potential of their mar- kets and company cash flows have been carefully examined. Factors impacting on property purchasing decisions have also been influenced by the rentals being paid in the geo- graphical areas in which businesses operate. In areas that are less in de- mand rentals have remained static or declined,” says Webb. He goes on to explain, “The major

April 2015