Please note that you are using an outdated version of Internet Explorer which is not compatible with some elements of the site. We strongly urge you to update to a newer version for optimal browsing experience.

Property sector future looks bright

09 Apr 2014

South African business owners in the real estate and construction sectors are very upbeat about future prospects for the sector. 

Despite the challenges facing the South African economy into 2014, including escalating living costs, shrinking disposable income, ever-rising household debt, and tighter credit regimes, the property sector will still offer shrewd investors, developers and finance providers the potential for sound, long-term investment opportunities.

Research from Grant Thornton’s International Business Report (IBR) reveals that 68 percent of SA businesses are optimistic about the outlook for the real estate and construction sector in the next 12 months.

“Optimism is returning to the global property market, but with a cautionary approach,” says Lee-Anne Bac, head of property and director for advisory services at Grant Thornton Johannesburg.

The IBR reveals that net 42 percent of businesses globally are optimistic for the sector in 2014, led by Southeast Asia (78 percent), Latin America (60 percent) and North America (56 percent). Europe (33 percent) is somewhat polarised between persistent pessimism in southern Europe but growing optimism across northern and eastern parts of the region.

“The European property market is taking longer to recover from the impact of the global downturn, as Greece, Cyprus and Ireland continue to struggle to find their feet, while interest in Spain, particularly in infrastructure development, is picking up,” says Bac.

Other indicators that the outlook for real estate and construction in South Africa is improving, are that 76 percent of South African executives in this sector are expecting an increase in turnover in 2014, while 59 percent predict improvements in selling prices in the year ahead. Sixty-four percent see improvements in profitability for their businesses during 2014 too.

Internationally, the IBR research reveals that an increasing proportion of real estate and construction businesses are also expecting to raise revenue (+8pp) and profitability (+5pp) in 2014, compared with this time last year.

Businesses in Southeast Asia (54 percent) and North America (50 percent) are more bullish in terms of profitability in 2014. Sector leaders in Europe (33 percent) and Latin America (31 percent) remain slightly more subdued.

Clare Hartnell, global leader for real estate and construction at Grant Thornton, says: “increasing activity in the real estate and property sector is a strong indicator that the global recovery is gaining momentum, although it would not take much to destabilise these improvements.

“As cities rather than countries seem to be the focus for investors and businesses alike, this can also mean distorted values in a small area, with the risk of some potential future realignment.” 

Other indicators that the outlook for real estate and construction in South Africa is improving, are that 76 percent of South African executives in this sector are expecting an increase in turnover in 2014, while 59 percent predict improvements in selling prices in the year ahead. Sixty-four percent see improvements in profitability for their businesses during 2014 too.

Hartnell says the top five cities for global property investors are London, New York, Los Angeles, San Francisco and Houston, and Toronto’s prices also seems to be holding up well.

The main driver for investment in cities anywhere around the world is infrastructure projects.

Major developments like transport links, highways, power plants and airports create value and stimulate growth, particularly as urbanisation increases with the growing shift of people into the cities, according to Hartnell.

South Africa’s most recent example of how infrastructure stimulates investment and growth has been the development of the Gautrain rail network, providing transport from the ever-growing commercial hub of Sandton to Pretoria, and to Africa’s busiest airport, OR Tambo International.

While not quite yet at previous high levels, the South African property market is certainly starting to show promise of growth into 2014.

The IBR survey for Real Estate and Construction reveals that 39 percent of South African businesses are planning to employ more staff during 2014. 

“This is a sure sign that businesses are seriously moving into a recovery phase,” says Bac.

Retail property is expected to deliver better results to investors in 2014, but office space is expected to be the weakest commercial property sub-sector with anticipated increases in vacancy levels.

“In first world countries, technology is changing the shape of the retail sector from the traditional bringing-customer-to-product model to more one of product-to-customer,” says Bac. Bac says owners of commercial retail space are forced to think of creative ways to attract shoppers while simultaneously retaining tenants, keeping ahead of competitors in the same space. Malls are becoming more family-oriented, and the quality of the shopping experience is all important.

Where new investments are concerned, Bac emphasises the importance of research.

“Property decisions made purely on gut feel will no longer suffice when making property decisions. Investments, whether global or local, should be driven by thorough research,” says Bac.

Diversification of risk remains essential in property investment, spreading risk across asset classes, location and, where possible, currencies, always ensuring the general supply and demand of economics make sense.

Even though the outlook for industrial property looks fairly positive, Bac remains sceptical of long-term investment in the manufacturing sector, and believes investing in certain industrial property is high risk. But warehousing, in particular, has a huge potential according to Bac.

“With higher production costs and lower productivity output than China, India and several other developing economies, South Africa’s manufacturing sector is neither efficient nor competitive at this stage.

“As the sector shrinks, property owners have neither the certainty of long-term tenancies, nor the sustainability of returns.”

Despite the challenges facing the South African economy into 2014, including escalating living costs, shrinking disposable income, ever-rising household debt, and tighter credit regimes, the property sector will still offer shrewd investors, developers and finance providers the potential for sound, long-term investment opportunities.

Print Print
Top Articles
For wealthy South Africans an investment from $500k is often less than the cost of a second property, and with this minimum amount set to rise, the rush is on...

Those hoping to sell in the current market should be patient, but pricing your property right and working with a good agent can speed things up. Here's what to expect...

With rentals so high in Cape Town’s prime coastal strip, buying property often makes more financial sense than renting, with good buy-to-let opportunities for investors...

Loading

Your browser is out of date!

It looks like you are using an outdated version of Internet Explorer.

If you are using Internet Explorer 8 or higher, please verify that your Internet Explorer compatibility view settings are not enabled.

For the best browsing experience, update to the latest Version of Internet Explorer or try out Google Chrome or Mozilla Firefox.


Please contact our Property24 Support Team for further assistance. Tel. +27 (0)861 111 724