Nedbank chief bullish about South African property prospects
| Speaking at the recent South African Property Owners Association
(SAPOA) Gala Award Dinner at Port Elizabeth, the first of its kind ever
to be held in this city, Richard Edwards, Manager, New Business for Nedbank
Corporate Property Finance (Cape), said that inflationary pressures and
the resultant 3,5% rise in interest rates in the middle of 2006 had not,
as yet, impacted too severely on the property sector - nor did he foresee
any disastrous falling off in investment although this is already beginning
to find new avenues.
There is, he said, a levelling off in the growth rate of new commercial projects in certain areas.
We have, he said, acquired a new maturity and resilience in the property sector. These have taken us through difficult times, even the period when interest rates rose to 20% and higher.
Nedbanks forecast for the interest rates, said Edwards, is that they will rise by a further 0,5% this year. Thereafter, he believed, they are likely to remain flat for a while.
The Reserve Bank, he said, possibly does not always realise that there is a significant time lag between implementation of new interest rate levels and their effect on inflationary pressures.
The good performance of the property sector, said Edwards, had enabled Nedbank Corporate Property Finance (Cape) to achieve an annualised growth in its order book of 34% over the last 18 months and this had taken the total loan book to R11 billion, by far the highest in the banks recorded history in the Cape region. By the end of this year, he said, R10 billion in new commercial loans alone are likely to have been signed up because there has been a marked swing to this type of development.
Nedbank Corporate Property Finance, said Edwards, now controls just under 30% of the national market for the funding of commercial and industrial property and this percentage is some 5% higher in the Western and Eastern Cape.
The current growth, said Edwards, is likely to be sustainable because investors buying into property or into property loan stocks have in recent years been much in evidence. As a result of the strong money flows into this sector, he said, cap rates had been driven down to their lowest levels in many years.
It is not unusual now to see property trading at yields of 7% or less. However, even with returns as low as these, the capital growth coupled with the income yield, continues to make commercial and industrial property a better investment than many other options open to investors, he said.
Also likely to keep the property market alive, following the marked levelling off in the residential sector, said Edwards, is the reality that economic growth has fuelled the demand for commercial and retail property as well as for industrial space.
Certain areas, he said, have seen industrial land prices rise by 300 % in less than two years. Prices in this sector are being driven up by the shortage of land available for rezoning within the urban boundaries a subject on which, says Edwards, there has been considerable comment without remedial action being taken by the authorities.
In the commercial/office market vacancy figures in the big cities, Nedbank figures show, are now often well below 10% and this has spurred developers into start-ups of new office development. Those who read the market at the right time (and commissioned contractors timeously) are now able to achieve good returns and rentals, e.g. R150 per m2 at Cape Towns Convention Centre.
Record retail sales over the last five years, said Edwards, have also resulted in the development of much extra retail space - a 24% increase in the last twelve months alone.
Nedbank Corporate Property Finance had followed their clients into this arena and are looking for new clients here.
For the first time in a very long while, added Edwards, Nedbank Corporate Property Finance had seen many of its clients take up opportunities in the smaller metropoles and towns, such as Port Elizabeth, Plettenberg Bay, Witbank, Middleburg, Nelspruit and Pietermartizburg. It is significant, said Edwards, that Nedbank Corporate Property Finance (Cape) has often been able to fund Cape Town developers now working on projects far distant from the big Western Cape centres.
These moves away, he said, are partially due to saturation, high land and building prices, as well as to the lengthy periods required to get plan approvals in the larger centres.
For further information contact Richard Edwards on 021 416 7005.