select
|

Prognosis for property market remains weak

’Tis not yet the season for property investors to be jolly, as property fundamentals continue to stutter. This is the prognosis contained in the latest issue of Rode’s Report on the S.A. Property Market.

Hindered by general economic uncertainty, growth in the demand for office space has not been forthcoming. The result of this has been vacancy rates that are “obstinately” refusing to drop and market rentals that are at best showing feeble growth. In the third quarter of 2012, rentals in the Pretoria suburbs showed the best annual growth of 2%. Nominal rentals in Johannesburg decentralized grew by 1%, while office rentals in the suburbs of Cape Town (-1%) and Durban (-4%) shrank. Commenting on this, property valuer and economist Erwin Rode of Rode & Associates, notes: “Irrespective of the region – and assuming building-cost inflation of roughly 10% – this implies that real office rentals declined by between 7% and 14%.”

Weaknesses in the manufacturing and retail sectors — the two support pillars of the industrial
property market — are likely to continue to place a lid on demand and, consequently, on rental growth. In the third quarter of 2012, nominal rentals on the East Rand, Central Witwatersrand, Durban and the Cape Peninsula were modestly up by between 4% and 4,5%.

Indeed it seems only capitalization rates are holding their own on the non-residential front as they continued to move sideways in the third quarter of 2012. Comments Rode: “This means investors still like income-producing property. This is so in spite of the pressure on cash flows owing to stubborn vacancy rates, poorly performing market rentals and fast-rising operating costs.”

In recent quarters, the growth in flat rentals has started to accelerate to such an extent that in  the third quarter of 2012 flat rentals were — on a national basis — up by a yearly rate of 6%. Rentals on houses could only achieve growth of about 4% while those on townhouses remained at roughly the same level they were a year ago. Over the same period, consumer prices (excluding owners’ equivalent rent) showed growth of roughly 5%, implying that flat rentals were at least able to show real growth.

At present there are more factors that are likely to weigh down and dampen house prices than factors likely to support a recovery in prices. The return to growth in the value of new mortgage loans granted naturally bodes well for prices. However, on the flip-side there are many things that will retard the growth in house prices. These are:

• consumer-price inflation that is uncomfortably close to the upper limit of the target range (thus diminishing the hope of an interest-rate cut in the near future),
• broad-based weaker economic growth (likely to further scupper employment and disposable-income growth),
• stubbornly high household debt levels and tighter credit standards to households -
• not to mention the fact that house prices are still very high in real terms, thus making the continual development of new houses possible on the supply side.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 23 Feb 2018
      RE/MAX Property Associates’ Table View Office, which services property buyers and sellers along the Table Bay coastline and surrounds, has recently sold a home in Woodbridge Island for R11 million – the highest price paid for any home in the sought-after security complex.
    • 23 Feb 2018
      Choosing to invest in an overseas property can be daunting. But as more and more investors recognise the value of a diversified portfolio that includes property outside of their own country of residence, international property investment is growing in popularity.
    • 23 Feb 2018
      The positive change in South Africa’s political landscape is paving the way for an upswing in the local property market.
    • 22 Feb 2018
      An excellent credit score is one of the most priceless assets a potential home buyer can have. This tool has the power to secure favorable mortgage and refinancing rate, influencing everything from the size of the loan repayment to the interest rate on the home loan.
    • 22 Feb 2018
      What do you do if you love your home’s location and the area, but the home no longer fits your growing family’s needs? Do you stay and renovate your existing home or find a home that meets your developing criteria?
    • 22 Feb 2018
      While every owner wants to sell their property at the best possible price, overpricing a home can be the kiss of death for a sale.
    • 21 Feb 2018
      Given the hand they were dealt, government has performed a delicate balancing act which it is hoped will serve to reignite confidence in investment in South Africa, regain our global credibility and satisfy the credit ratings agencies, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
    • 21 Feb 2018
      The real estate mantra, ‘location, location, location’ remains a strong market influence regardless of the prevailing economy, with suburbs like Rondebosch enjoying the buffering benefit of being ideally situated.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK