Where to for the commercial property industry?

Where to for the commercial property industry?

....Asks Rodney Luntz.

With the Rand having depreciated, growth in the SA economy predicted to be sharply down and the global economy in turmoil - “Where to now for the commercial property industry?”.

From an industrial perspective everyone in the market was clamouring for a weaker rand and given recent circumstances, commercial property experts are now pondering whether this will be the life line for the industrial property market?

Although a weaker rand will make South Africa’s manufacturers much more competitive, the truth is that the global crisis has dented demand and no matter how weak the rand is or becomes, if demand is down then the industrial sector as a whole will decline. Until the global economy and our own economy begin to recover, the industrial sector is going to remain depressed.

Furthermore according to economists our own growth forecasts have been reduced to 3.2% from 3.7% previously and to 3.6% from 3.9% next year. This growth rate will have very little effect on our employment numbers which again must have a knock on effect on the property market.

From an office perspective, the market is pretty stagnant with only certain nodes showing slight improvement. The slight improvement that is taking place is due to the fact that there is very little new stock coming onto the market and savvy tenants taking advantage of a weak market. The slowdown in the economy and no meaningful uptake in employment does not bode well for this sector.

The weak rand also has an impact on the retail sector as this adds to their costs due to imports being more expensive. Retailers were seeing the benefits of the low rates which put more money in consumers’ pockets, which in turn resulted in a greater turnover. A weaker rand however adds to inflation which then causes rates to increase. With interest rates looking to increase rather than decrease, the effect on retailers is obvious and the sector finds itself in a rather vicious cycle.

So overall a weaker rand, a slowdown in the economy and the global crisis are all putting pressure on an already weak market.

Notwithstanding this weak market we are still seeing a fundamental disconnect between what a seller wants for his property and what investors are prepared to pay. Under such circumstances, sellers need to understand that they are selling into a very difficult market and thus have to be realistic in terms of their pricing.

Properties which are not realistically priced are just not selling. In a strong market premiums may be paid for certain properties but not so in a weak market. In such a market pricing is everything.

If sellers aren’t realistic in their pricing then their only choice is to button down the hatches and be prepared for very turbulent times.

*Rodney Luntz is the Managing Director of the High St Property Co.

Pinnacle Point risks delisting from JSE

Pinnacle Point risks delisting from JSE

Ailing property firm Pinnacle Point Group may be delisted from the Johannesburg Stock Exchange should a final liquidation in November be approved.

Already the trading of Pinnacle Point shares, which are 1c apiece, have been suspended on the Johannesburg Stock Exchange (JSE) following a court ruling ordering the company to be put under provisional liquidation.

“The requirements make provision that if a company is placed into liquidation the company may be suspended under those circumstances and typically we would. In this particular case the company also requested the JSE to suspend the listing and we obviously acceded to that request,” Andre Visser, the general manager for Issuer Services at the JSE said.

Asked what the motivation was for Pinnacle Point to remain listed on the JSE if it had liquidity issues, Visser said:

“There is no real motivation at this stage that is why it has been suspended. But what I am saying is we will only consider the termination once we see what is the outcome of the court case. If the company somehow comes out of liquidation and it is liquid again the JSE would consider [re-instating the listing] but if that is not likely then obviously we would not re-instate the listing.”

The provisional liquidation was granted in favour of a firm called Cape Point Vineyard, which owns 80m shares or just under 1% of the Pinnacle Point Group. Cape Point Vineyard won a business rescue in July, appointing Mike Lane as a practitioner. But now it wants Pinnacle Point to be finally wound up.

The owner of Cape Point Vineyard, Sybrand van der Spuy, says the business rescue was turned into a liquidation because of frustrations from some board members at Pinnacle Point. Van der Spuy believes there is a zero chance that Pinnacle Point will avoid a final liquidation.

“I will take a bet not because I am pleased about it. It’s a disaster for myself I am losing a bit of money but if you look at the poor pensioner they are losing R260m and the chances of shareholders getting any money back I think it’s zero ... I have lost R5m. It’s one thing for me to lose R5m and other people to lose R260m,” van der Spuy said.

He also said that he was considering laying criminal charges against some board members at Pinnacle Point for alleged bribery.

FNB/BER building index steady

FNB/BER building index steady

FNB/BER building index steady


Building confidence has remained almost unchanged in the third quarter of 2011, from the preceding quarter, according to First National Bank and the Bureau for Economic Research.

The latest FNB/BER building confidence index edged down to 23 points from 24 points in the preceding quarter, it was revealed on Wednesday.

The index can vary between zero - indicating an extreme lack of confidence - and 100, indicating extreme confidence. It reveals the percentage of respondents that are satisfied with prevailing business conditions in six sectors, namely architects, quantity surveyors, building contractors, building sub-contractors, manufacturers of building materials and retailers of building materials and hardware.

The survey showed that the composite building confidence index remained steady during the quarter under review, as changes in the constituent parts cancelled each other out.

The confidence of quantity surveyors, sub-contractors and building material merchants increased, while that of architects, main contractors and building material manufacturers declined relative to the second quarter of 2011.

"Too much should not be read into the Q3 2011 increase of sub-contractors and merchants, as well as the decline of manufacturers, as a longer term perspective reveals that in these cases confidence mostly reversed to their Q1 2011 levels," said Cees Bruggemans, chief economist at FNB.

Residential building confidence declined to 21 points in the third quarter, from 24 points in the previous quarter, as growth in building activity faltered once more.

However, non-residential building confidence increased to 21 points in the period in focus from 16 points in the previous quarter, boosted primarily by private sector and some government work.

Bruggemans said increased investor uncertainty following renewed sharp falls in global share markets and economic growth downgrades at best pointed to continued weakness in the building industry in the next quarter or so.

I-Net Bridge

Self-employed still struggle to obtain bank home loans

Self-employed still struggle to obtain bank home loans

In spite of interest rates being at a 33-year low, banks remain very cautious in granting home loans, with all information submitted to them being thoroughly analysed to ensure applicants can afford to buy, says Kim Pistor, legal adviser and conveyancing manager for Rabie Property Group.

Pistor says although it is relatively straight forward to confirm the monthly earnings of salaried applicants, the same can't be said for those who are self-employed.

"In these cases supporting documentation is a key element in successful mortgage applications, and the banks require financial histories for the preceding two to three years.

"It usually t akes much longer to have bonds approved for these applications as they are often initially declined due to the various banks' tight criteria for self-employed individuals. Quite often clients find their own banks are not the ones that eventually issue approvals, so the services of a mortgage originator can be beneficial," says Pistor.

To assist residential buyers, Rabie has teamed up with John Savage and Liz Botha of Better Bond, who helped many of Rabie's buyers have mortgage finance approved at the best possible interest rates.

"A key bit of advice they give property investors is to check their own credit bureau reports annually as this is a critical part of the assessment process for mortgage lending," she says.

"Interest rates offered by banks can vary by as much as 1 percent, and applicants don't necessarily get the best rate from their own banks. Investors are sometimes disappointed that they can't get the same rate they were offered three years ago. But with the prime interest rate at 15 percent in December 2008 against the current 9 percent, the banks can no longer offer the previous average 2 percent discount on prescribed interest rates.

"The risk related to the loan now has more of a bearing on the rate discounts offered. In addition, applicants with positive credit ratings and deposits of 10 percent or more will be offered more favourable interest rates than applicants for 100 percent bonds."

Weekend Argus (Saturday Edition)

Self-employed still struggle to obtain bank home loans

Self-employed still struggle to obtain bank home loans

In spite of interest rates being at a 33-year low, banks remain very cautious in granting home loans, with all information submitted to them being thoroughly analysed to ensure applicants can afford to buy, says Kim Pistor, legal adviser and conveyancing manager for Rabie Property Group.

Pistor says although it is relatively straight forward to confirm the monthly earnings of salaried applicants, the same can't be said for those who are self-employed.

"In these cases supporting documentation is a key element in successful mortgage applications, and the banks require financial histories for the preceding two to three years.

"It usually t akes much longer to have bonds approved for these applications as they are often initially declined due to the various banks' tight criteria for self-employed individuals. Quite often clients find their own banks are not the ones that eventually issue approvals, so the services of a mortgage originator can be beneficial," says Pistor.

To assist residential buyers, Rabie has teamed up with John Savage and Liz Botha of Better Bond, who helped many of Rabie's buyers have mortgage finance approved at the best possible interest rates.

"A key bit of advice they give property investors is to check their own credit bureau reports annually as this is a critical part of the assessment process for mortgage lending," she says.

"Interest rates offered by banks can vary by as much as 1 percent, and applicants don't necessarily get the best rate from their own banks. Investors are sometimes disappointed that they can't get the same rate they were offered three years ago. But with the prime interest rate at 15 percent in December 2008 against the current 9 percent, the banks can no longer offer the previous average 2 percent discount on prescribed interest rates.

"The risk related to the loan now has more of a bearing on the rate discounts offered. In addition, applicants with positive credit ratings and deposits of 10 percent or more will be offered more favourable interest rates than applicants for 100 percent bonds."

Weekend Argus (Saturday Edition)

SA property growth loses momentum

SA property growth loses momentum


Growth in SA commercial property returns stagnated in the first half of 2011, reflecting an overall slowdown and uncertainty in local and global economic conditions. Property delivered a 4.3% total return in the six months to June 2011 according to the SAPOA/IPD South Africa Biannual Property Indicator.

Rental income provided the only return to investors at 4.3%, while at an aggregate level the market recorded zero capital appreciation. The disappearance of any capital growth takes the market back to the similarly flat conditions of the same time last year, after a small spurt of growth in the latter half of 2010.

Although returns deteriorated across the board, some sectors of the market still provided glimmers of growth. Retail property remained resilient, managing to produce 0.4% capital growth in the six months. Offices posted just 0.1% capital growth with the overall sector returns adversely impacted mainly by the performance of inner city offices. The industrial sector, however, with the exception of high-tech industrial property, suffered a contraction in capital growth of -1.5%, making it the worst performing of the three main sectors.

Downward pressure on property returns is coming from a number of directions. Vacancies passed yet another turning point and started rising again in the first half of the year. The aggregate national vacancy level stands at 6.8% as at the end of June 2011, with office vacancies of 11.7% being of particular concern for landlords. Retail vacancies are currently 6.4% while industrial vacancies are 4.2%.

These rising vacancies contributed to slower growth in rental income received by property owners, with the retail sector subjected to the earliest declines. In addition, base rental yields moved out to 9.6% as at June 2011, a softening of over 40 basis points compared to December 2010. These factors combined to wipe out growth in property values.

In much the same way that property growth in the second half of 2010 was not just due to post World Cup exuberance, the flat-lining of SA property growth in the first half of this year comes within a more subdued economic context.

Indeed, the small upturn in 2010 was supported by a number of economic factors including a return to retail sales growth, improved manufacturing output and a small rise in business confidence. There now appears to be a general loss of momentum and there are even contractions in some sectors.

Property returns are being increasingly influenced by localised conditions, resulting in greater divergence in performance between different provinces. Of the three main provinces, Gauteng produced the highest office returns, the strongest retail returns were in the Western Cape and Kwazulu-Natal had the best performing industrial market.

Stan Garrun, Managing Director of IPD South Africa, commented: “Words like “turmoil”, “volatility” and “slowdown” are again appearing in global property headlines. Is this the onset of the dreaded “double-dip‟? The latest South African results from IPD show that we are not immune to global uncertainty. In South Africa we have also had to deal with difficult local issues most notably rising costs. The protection of income streams is therefore at the forefront of owners‟ minds. These trends indicate that there will be little defined growth in property values until the imbalance between supply and demand is righted and in the near term market performance is likely to be hesitant at best”