Real Estate News - South African property investors need to be fully aware of what is happening in the international property market
This is according to Tony Bales of Commercial Property Dealmakers, Bales Delaporte.
During the apartheid era, South Africa operated as an island in the greater world economy. We have only now become a full member of the global property economy and suddenly, South Africa is being affected by the events in other countries. Globalization has had a dramatic effect on the way this country conducts its business.
On several occasions severe events, such as September 11th and the interest rate spike in 1997 to 25%, ended up having a hugely negative effect. On these specific occasions equity markets took a battering, but property was in general largely unaffected, says Bales.
During the good times, it is easy to forget about what range of fundamentals have assisted us in achieving a truly phenomenal level of growth over the last eight years with staggering results for both the residential and commercial markets. Many pundits have patted themselves on the back, whilst others have claimed to be great visionaries. The truth of the matter is that is has been difficult to go wrong in these good times as the saying goes, even turkeys can fly in a hurricane!
The same fundamentals have been achieved internationally, advises Bales. In countries where single digit inflation has been in place for decades, residential property growth in excess of 20%, year after year has been commonplace. For the first time in the global economy, almost all property markets returns have headed for the stratosphere.
Economists and experts have been starting to warn of an international slowdown, especially for residential property. The USA market has started to show signs of cracking and certain experts see current values being about 30% higher than they should be. What would be the impact of a 30% drop in prices of residential property in the USA? One thing that is certain, is that there WILL be a consequence for South Africa, and it wont be positive! warns Bales.
Commercially, the search for good, solid income producing property returns has taken on new dimensions recently. Most of the worlds top property companies employ people dedicated to what is known as cross border transactions where companies try to pursue either higher returns, or more stable returns on a risk adjusted basis.
The global Real Estate Investment Trust (REIT) model is now accepted as the best way to facilitate the easy flow of capital into and out of property ownership companies in different countries. Bales says that it is anticipated that once SA adopts REITs as a standard, a significant amount of capital flow would be seen into the larger of the SA domiciled funds.
South Africas listed sector, according to Catalyst Fund Managers, is valued at about $13bn versus North America at $411bn, Europe at $244bn and Asia at $176bn. Most importantly, the income yield of SA funds is almost double that of the international funds, offering international investors more than enough risk premium for entering South Africa. Put simply, we need to be very aware of what is happening internationally as this WILL affect our commercial property market.
According to Bales, during the last year property brokers have been seeing increasing interest from major international property players and corporates with only a fraction of these having actually invested so far.
The recent MIPIM property convention that has just taken place in France saw 26,000 of the worlds top property players attending the convention with all major cities marketing themselves as investment destinations. However, the major cities in SA were hardly represented and one must ask how our cities expect foreign investment if they are not rubbing shoulders with the global players and seen on the stage where their competitors vie?
Norbert Sasse, Chairman of the SA Property Loan Stock Association feels that every serious company and city in South Africa should be sending representatives to MIPIM in order to solicit investment interest. It is possibly no coincidence that Sasses property funds are some of the more successful in SA.
Bales concludes that South Africa has only now become a full member of the global property economy and that investors must understand the implications of this and become knowledgeable in worldwide terms and events. Those that master their understanding of the global property economy today, will lead tomorrows property performers.