Housing in Southern Africa February 2015

Infrastructure & Mixed Use

SA property safe haven for investors Quality commercial and industrial properties in South Africa will continue to boast yields comparative to most other investment classes in the near future.

long-term value of property.” Of more immediate concern for property owners is the increase in the cost of maintaining and managing properties, suchaswages for cleaning staff and security guards, mainte- nance services, municipal property rates and electricity charges. “These costs are difficult to con- trol, but have a major impact on the return on investment that a property brings to a portfolio. Under such dif- ficult circumstances, it becomes even more important for an investment property to bewell managed tomain- tain its value. Business owners and investors, who are too distracted to pay attention to their properties, are well advised to appoint professional property managers.” The interest rate is another risk factor to consider as, should it go up, property values will stagnate as the investment becomes less afford- able and attractive. Van Biljon says that given the risks, investors should consider buying with a co-investor, in order to spread exposure to risk. “Business Partners has co-in- vested in many retail and industrial complexes in addition to purchasing such property outright. As it is dif- ficult to time the market, property must therefore be seen as a long-term investment,” concludes van Biljon. ■

T his is despite the market re- maining as flat as it has over the past five years, says Gerrie van Biljon, Executive Director at Busi- ness Partners. The company oversees a property portfolio of almost R1 billion. Van Biljon believes that the South African property market is less ex- posed to shocks in the global econo- my than for example, the stock mar- kets. “Any of the imminent setbacks to the global economy, such as the raising of the close-to-0% interest rates of the developed world, or the tapering off of America’s policy of quantitative easing, will reflect im- mediately in the JSE indices, but not necessarily in property values.” He says that the fact that there are very few bargains to be found in South Africa’s commercial property sector – particularly manufacturing and retail space – despite the econo- my’s sluggish crawl back from the re- cession, proves themarket’s status as a solid investment in difficult times. “Business owners havebeenunder pressure since the property boom ended in 2008, most have either

exited the market or now have their affairs in order. Investors also tend to hang onto their property invest- ments rather than dispose of them in order to invest in low bearing return categories. The consequence of this is that capitalisation rates remain virtu- ally unchanged: meaning the price of commercial and industrial properties did not take a major dip, unlike the residential market where prices fell.” Owners of non-premium office blocks are therefore unlikely to get the rental escalations for 2014 that they would like, as the high level of vacancies places tenants in a strong negotiating position. He says that the anaemic economy will continue to pull down rental escalations for commercial and in- dustrial properties in the year ahead. “Tenants are increasingly opting for shorter leases, and landlords are struggling to attain a 10% rental in- crease owing to the strong bargaining position of tenants. This, he says, is a far cry from the 9% to 14% increases they could apply a few years back. If such weak escalations continue, they are likely to put pressure on the

February 2015