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The year ahead - what property experts say
Date published 5 February 2009
TODAY'S much-anticipated interest rate announcement by South African Reserve Bank Governor, Tito Mboweni, is not just rousing the attention of consumers and the depressed residential property sector; but that of the all important commercial and industrial property industry sector, too.
This week, Commercial Review canvassed the opinions of a few leading industry players in KwaZulu-Natal in terms of their outlook for the 2009 business year - with most saying cuts in interest rates would be a key factor in helping to buoy the commercial and industrial market.
This comes as the international financial crisis is having a knock-on effect on most sectors of the South African economy. With today's reserve bank decision (at 3pm) market expectations are for a more aggressive 1% cut in the bank's repo rate from 11.5% to 10.5% - but overall, the KZN commercial and industrial property industry is looking forward to more cuts this year. Some property professionals are even expecting cuts by up to 4% by year-end.
"We are expecting a good year, much better than last year; and are very positive, with all 10 of our commercial and industrial brokers in Durban working on lots of decent inquiries," said Colin Sher Managing Director of Broll KwaZulu-Natal.
"The biggest positives will be the downward trend in interest rates (hopefully by a fuil 3% by year-end) as well as lower building costs, due to the lower worldwide demand for materials.
"The combination of the harbour widening, new international airport north of Durban, the FIFA World Cup and associated infrastructure like our new soccer stadium ail coming on stream in 2010, just brings a huge positive sentiment that also helps drive the market," said Sher.
"We must never underestimate that "feel good" factor as market players realise they need to take strategic positions. Land is finite and they know that... So limited opportunities in places like the Durban Point Waterfront, Bridge City, as well as the western industrial corridor and areas around the new airport, will have the impetus they need to really get the momentum going," he added.
"The market is certainly not in a boom. However we are finding a lot of movement, especiaily on purchases by end-users who are now seeing fair to good value return to the markets. This is in contrast to 2007. when unsophisticated investors were paying way over market value and are now battling with failing tenants and high monthly installments.
"These properties are now coming back onto the market at more realistic prices with the downscaling and consolidation of industrial and office users, which is creating lots of work for us," said Sher.
Gerrie Van Biljon - the Durban-based Executive Director of SME financier Business Partners - said that there are indications that the reserve bank will seriously consider cutting interest rates this year to bring the prime lending rate to as low as 12% by year-end. He said: "The general property market has been greatly affected by current economic conditions. There is now also an outcry from the broader business community to reduce rates in an effort to stimulate the economy It can be expected that the rates will be reduced over a period of time rather than a major once off cut.
"While the residential market took a plunge, the full extent of the liquidity crunch has not filtered through to the commercial and industrial property market to the same extent. With the current economic outlook for 2009, one can expect that this market will be under pressure, and the consequence of that is a consolidation or drop in market values.
"The drop in value of the commercial and industrial market is not remotely close to that of the residential market. Where possible, investors tend to hang on to their properties and weather the storm. The property market should recover as the economy recovers, which is not expected before 2010.
Russell Scorer, head of commercial and industrial property at Maxprop, said the world economic slowdown was having a knock-on effect on the property industry with downward pressure on rental growth and more restraint in terms of new developments.
"The name of the game in these times is retaining tenants... I see this as a year of consolidation for the commercial and industrial property market. Besides the cuts expected in the interest rates, increases in building costs are also tapering off compared to dramatic escalations in the last year and this is good news."
Scorer said South African interest rates were completely out of line with what is happening globally, with the reserve banks of most nations making big cuts - and some taking their repo rates close to zero.
"With what's happened globally, it is something we also have to do. We have to cut interest rates more aggressively and we expect to see it dropping by 3% to 4% by the end of the year. At Maxprop we had an excellent year last year. Now with cuts in interest rates expected, and as aggresive investors, we will take advantage of opportunities that come onto the market as a result of the economic slowdown. While we see a consolidation of the market, we also aim to sustain growth," added Scoret.
Durban-based Chalupksy Properties has agents in the four main commercial nodes of the metro, with about 600 properties on their books.
Owner, Herman Chalupsky said: "The commercial and industrial property market in South Africa hasn't been as affected as overseas markets.
"The listed property sector has performed brilliantly and most people with money have a C&I property portfolio, which shows the value of a brick and mortar investment.
"Any decrease in interest rates will help, but the market is stil tough and it will probably take about 18 months to settle. Good tenants are becoming scarcer because businesses aren't performing like they were a year ago.
"In this market, good tenants are king and landlords should adjust their rents to attract them. Landlords who wouldn't consider dropping rentals a year ago are now flexible, which is sensible. They would rather have a regular, reliable income than unrealistic expectations".
Author: Mercury (Durban)
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