The year 2011 for the South African property sector is likely to be remembered for improper conduct and misappropriation of funds by many leaders.
The year 2011 for the South African property sector is likely to be remembered for improper conduct and misappropriation of funds by many leaders.
According to Bill Rawson, chairman of Rawson Properties, this is doubly regrettable because many of those who had been implicated had spent years establishing their reputations and building good brands.
The damage to themselves and their companies, he says, had been increased by the general public’s ability to comment and communicate to the world on these matters via the electronic media.
In one case a dedicated blog had been started just to air grievances about one operation, he says.
The lack of efficiency, the changes and staff suspensions in the Institute of Estate Agents and Estate Agency Affairs Board have also added to the 2011 property sector woes, he says.
Rawson says it would help, if the Department of Trade and Industry communicated with the industry leaders rather than implementing new legislation without much consultation.
Meanwhile, Rael Levitt, chief executive officer of Auction Alliance says 2011 was a tough year for the South African real estate industry.
Even after three years of trudging through a severe downturn, the year did not present a path to recovery.
As buyer-demand cooled, concerns about global sovereign debt heightened and weak prospects for the local economy worried investors.
“From an auction perspective, we saw a distinct cool off in demand from the third quarter,” he says.
Levitt explains that early in the year they said the outlook for the residential market would be perturbing with a predicted double dip in house prices after 2010’s short-lived uptick.
Auction Alliance stated that for the next 18 months, improvement in house prices seemed unlikely, given huge uncertainties over the strength of the economic recovery.
He says there has been neither an economic nor a property recovery.
“It is most likely that 2012 will see further house price lethargy and contraction. “
The luxury and leisure residential markets remain the most beleaguered, with entry-level housing being the bright spot on a murky horizon, says Levitt.
In 2011, the greatest challenge for the auction industry was attracting buyers who have been over supplied with non-income producing and distressed properties.
It was also a year of game changer for the auction sector with the implementation of the Consumer Protection Act, the full effect of these regulations is still to be implemented.
Levitt reflects that he was correct when he said in January the commercial property market would become two-tiered – prized properties would experience a surge in demand whilst lower-end properties would have less appeal.
The volume of vacant office stock continued to rise during 2011, but began to tail off as few new developments commenced.
Office block sales were strong in the first two quarters, compared to 2010.
Retail property transactions remained robust throughout the year and yields for prime properties reached 8 percent.
There was a decrease in demand for smaller retail units and strip malls as more vacant stock coming onto the auction block - this was prominent outside Gauteng.
While there was a small increase in the number of enquiries for industrial property, occupier and investor sentiment now seems to have steadied, he says.
Development land continues to be the weakest performing part of the market and the downward trend seen since 2010 will continue.
Levitt explains that the new Companies Act, which came into effect in May, had a material effect on auctions with the introduction of Business Rescue.
In the last quarter the new statute caused a slowing in liquidations as higher-value distressed companies opted for business rescue.
The market saw a spate of distressed houses hitting the market but banks are methodically clearing out their inventory while the real trouble now seems to be with larger banking exposures in areas other than home loans.
In many instances, this has caused a bottleneck of insolvent companies that have no chance of recovery.
“We will see a spate of higher-value liquidations and auctions in 2012 when the logjam clears,” predicts Levitt.
The market saw a spate of distressed houses hitting the market but banks are methodically clearing out their inventory while the real trouble now seems to be with larger banking exposures in areas other than home loans.
The country’s largest liquidation sales were held in 2011. This includes the R720 million sales of the failed Bel Air and Lone Hill shopping malls in Gauteng.
"In every single sector from farms to apartments, luxury homes to aircraft, office blocks to shopping centres we saw record breaking value transactions hitting the auction floor this year."
Auctions have shown that there are no price barriers and that they are an asset disposal vehicle that cuts across all price classes and asset categories, says Levitt.
According to Auction Alliance, distressed sales accounted for 47 percent of the company’s auction revenues.
He adds that this outlook for 2012 is disquieting. Quite how bad, will depend on a myriad of global and local issues, but there is no doubt that 2012 will be filled with challenges and tribulation.
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