PROPERTY FINANCE

This morning, I was fortunate enough to attend the Property Finance "Power-Hour" Breakfast offered by SAPOA (South African Property Owners Association) in Sandton.

The Power Hour was presented by Gerhard Zeelie of Standard Bank and he dealt with the state of the South African Property Market. It was interesting to get his perspective on where the market is and where it may be heading. No-one can accurately predict these things BUT as Gerhard said … "At least he has charts."

Obviously an hour is wholly insufficient to cover the whole market in depth but we were afforded the opportunity to gain an oversight. Gerhard dealt with the following:

• Office Property Market
• Industrial Property Market
• Retail Property Market
• Residential Property Market

SOME MARKET SEGMENTS PERFORMING WELL
On average, the first three segments of the property market appear to be fairing quite well. Returns in the Office market are currently the best with an average return of 14.1% but the other segments are also reasonable with Industrial at 13.6% and Retail at 13.1%. In Gerhard's words, when it comes to Retail space, "Bigger is Better". In other words, neighbourhood centres are not doing as well as regional centres.
On the supply side, there is still plenty of retail space being built. This is illustrated by the following table reflecting the area completed in respect of centres over 5000m²

2008	865,048 square meters
2009	543,814 square meters
2010	394,973 square meters
2011 (provisional)	454,100 square meters

RESIDENTIAL MARKET IS POOR
However, the Residential Market is close to a disaster in terms of performance. Standard Bank's median house price has recorded a growth rate of 3.3% year on year in May and the FNB House Price Index 2.1% in May. It is clear that these increases are below the official inflation rate and that therefore in real terms, house prices are actually declining. The leisure market (e.g. Golf Estates) have been particularly hard hit. There are, however, some bright spots to this picture of adversity. Firstly, the buy-to-let market is showing good returns as a result of the "bargains" on offer. The Affordable Housing Market is still performing well.


DEVELOPMENT LOSS DRIVERS
Standard Bank have conducted an investigation into Development Loss Drivers. In other words, what factors cause financial losses to Developers. I may go into this on my Blog sometime in the future but I must say that for someone (like myself) who is interested in Real Estate Development, it provides some fascinating insights and I would have liked to engage with Gerhard on this topic for far longer than the time allowed.


CONSUMER PROTECTION ACT (CPA)
Gerhard briefly dealt with some aspects of the CPA that have particular relevance to the Property Industry. SAPOA is currently liaising directly with the relevant authorities regarding specific provisions of the Act and the Regulations. SAPOA will also shortly be presenting a workshop dealing exclusively with the CPA. I will therefore soon dedicate a detailed Blog Post to the CPA and follow it up in a series of posts as various aspects of the operation of the CPA become clearer.


Thanks to Gerhard Zeelie of Standard Bank and to SAPOA for an interesting morning (and a good breakfast)
Gareth Shepperson