Despite some challenges, most segments of the real estate market remain dynamic

Different segments of the real estate market are under different pressures, but all remain generally buoyant, with interest rates supporting demand for real estate, industry insiders told a webinar hosted by financial services firm Nedbank Private. Wealth on May 25.

The impacts of interest rates, Covid-19 lockdowns and property demand differed between commercial and industrial properties, said the director of property valuation firm De Leeuw Group Gemma Moore.

The commercial sector has seen changes in the long-term demand for commercial properties, with leases generally being for three to five years instead of ten years and in many cases rent-free periods have been offered to improve attractiveness available spaces, she added. underline.

“Office rentals are under pressure, with many rental reversals in Class A offices and rent leakage in Class B and C properties which may push users to move to a new property or a property of lower quality, and there is pressure on the lower grade of commercial properties, as well as increased demand for smaller units and in outlying areas,” she said.

The industrial sector, meanwhile, saw more resilient demand, which remained strong in some nodes. This is tied to fundamental requirements of the industrial sector, including location, accessibility and connectivity.

In addition, property-specific attributes remain important for some industrial tenants.

“In general, industrial rentals have not declined, but have moved sideways. Demand for logistics real estate remains strong, although often newer and purpose-built, with rentals driven by return on cost development,” Moore said.

Meanwhile, the residential real estate market remains buoyant and strong, with more than 240,000 real estate transactions taking place in 2021, numbers similar to numbers last seen in 2008.

There were 6.9 million registered properties in South Africa, with a combined value of R6.4 trillion, of which 81% were freehold properties, 7% were properties in estates and 12% were estates. section title properties, property market information firm Lightstone said. Digital property manager Hayley Ivins-Downes.

“Throughout the period affected by the pandemic, the real estate market has not behaved as we expected, and we have seen a good and active real estate market, with prices holding up, sales increasing , banks raising lending and interest rates to their lowest in decades, which has encouraged people to buy property,” she said.

Additionally, there were significantly more construction plans submitted for townhouses and apartments than in previous years.

Meanwhile, property prices have seen moderate inflation over the past two years, with the luxury market attracting 5% inflation, while general residential property prices have risen 6%.

In addition, 60% of all properties are bonded, although a high percentage, at 40%, of real estate transactions are cash.

“We are watching the effect of the recent interest rate hike and seeing some slowness starting to set in. Prices are holding up, but it will be interesting to see how various economic factors affect the market over the course of the year. coming year,” Ivins-Downes said. .

In addition, South Africa and the world have experienced an interest rate rollercoaster ride over the past 18 months which has had a direct impact on the commercial property sector in terms of cost of finance and ability to repay project debt, National Property said. president of the council of practitioners Vuyiswa Mutshekwane.

Changes in interest rates have also impacted project loan-to-value ratios and investment attractiveness, she said.

“This has been a big area of ​​focus for listed companies [real estate investment trusts] over the past 18 months managing their LTVs,” she noted.

Mutshekwane pointed out that environmental, social and governance (ESG) measures were becoming increasingly targeted, as they impacted the ability of some funds to attract capital and also pricing in some cases.

“Investors are aware of this and review the ESG profiles of the companies they invest in, as an ESG strategy is linked to a company’s risk management strategy, long-term growth and sustainability, as well as to energy, waste and cost management,” she says.

Meanwhile, logistics has emerged as a pocket of opportunity in the industry and, although impacted by Covid-19 related movement restrictions, demand for student accommodation remains high and is expected to increase as more people come. students are returning to campuses, Mutshekwane said.

Additionally, healthcare real estate was a new and growing part of the sector, while the residential sector was also seeing growth, she said.

“It’s been a tough ride over the last 18 to 24 months with the possibility of more, but we’re seeing lots of green shoots and sectors that present lots of opportunities,” she added.

DELIVERY DECISIONS
Other considerations for property investors were socio-economic stability, such as the July 2021 riots which reverberated throughout the sector, and differences in service provision and service provision between areas, which affected attractiveness and demand for properties, noted Mutshekwane.

“While these risks must be considered among many other economic and external factors in determining risk profiles, rates, taxes and service delivery issues have a direct and tangible impact on the sentiment of a market. real estate in a particular region, and even on the attractiveness of the country nationally,” she said.

“Property investors and tenants want a property to be clean with good service delivery and reliable power and predictable rates and taxes that are managed and charged appropriately. Service delivery challenges can have a significant impact on the dynamism of a real estate market in a particular region”, she underlined.

Meanwhile, South Africa has released rental housing regulations for public consultation, which aim to strengthen the framework that governs tenant-landlord relations.

“While this is something that investors considering buy-to-let properties need to be familiar with, it is a push to create more clarity and provide a more transparent regulatory framework for tenant-landlord relationships,” said said Mutshekwane.

Significantly, the regulations would also impact the informal rental housing market, which a significant portion of the South African population relied on, and would require the creation of rental agreements, as well as supporting greater tenant rights. and the ability for them to exercise those rights, she says.

In addition, the enacted Real Estate Practitioners Act is another key piece of legislation focused on regulating the behavior of real estate practitioners and protecting consumers.

Its aim is to extend regulatory power and authority to a wider group of people, including not only industry practitioners, such as real estate agents, but also others involved in the buying and selling of properties.

“The legislation provides more regulatory clarity for the industry, which is intended to help the industry operate better and more safely, and to support sound investment. However, the real test will be whether authorities can implement and enforce legislation and regulations,” she said.

Penny D. Jackson