Property in Eastern Cape still safe bet, experts say

'Mild interest-rate environment and good economic growth still support the market'

Investing in property is still a good idea, especially commercial property, as the outlook for its performance remains bullish, according to First National Bank (FNB).

FNB property strategist John Loos said the mild interest-rate environment and real economic growth of 4%-5% a year expected for the rest of the decade had made property an attractive investment.

Statistics South Africa data say the Eastern Cape is well placed to benefit.

Last year, shopping space in the province rose 197% compared with 2004, while industrial and warehousing space rose 162,4%.

This was the highest provincial rise with the national average of completed shopping space dropping 17,2%, and warehouse and industrial space increasing only 1,8%.

As reported in the Daily Dispatch recently, there were also a number of large developments in the pipeline for the Buffalo City municipality, which would boost property prices in the area.

These included the R200m upgrade of the Vincent Park Shopping Centre over the next two years, providing for extra shops, more undercover parking and improved traffic flow around the centre; the recent upgrade of what was formerly known as Skyways in Southernwood; and the construction of the R500m East Coast Mall on the way to Gonubie.

Loos said that while there were risks to the country's economic forecasts, interest rates alone were not the key risk. If interest-rate hikes were a result of a weak rand, he said this would not negatively affect property investors.

"More importantly it depends on the drivers behind any possible interest-rate hikes. Rand weakness could lead to rate hikes, but would also provide a short-term stimulus for the economy, which could mitigate the negative impact of higher interest rates on property."

He warned that the oil price posed a greater risk to property investments. "An oil-price shock could be far more damaging to property, with the potential to drive interest rates higher, as well as severely harming global and local economic growth."

He cited one of South Africa's biggest property booms in the early 1980s, which took place amid rising interest rates. "Rising interest rates always pose some risk to property. But if the driver of inflation and interest-rate hikes is also a growth driver, the negative impact may be limited.

"FNB's base case is not one of rising interest rates, however, and the property outlook continues to appear solid. Ironically, a sharper-than-expected strengthening in the rand may be as significant a short-term risk to property due to the near-term pressure that it could put on economic growth, especially in industrial property," Loos said. - With I-Net Bridge

Article by: Phumza Macanda - Eastern Province Herald