South Africa - ranked 17th as emerging market property investment destination

An annual international real estate survey has ranked South Africa 17th among emerging markets being considered for investment in the near future.

The top five are Brazil followed by China, Turkey, India and Vietnam.

The survey was conducted by the Association of Foreign Investors in Real Estate in which global commercial real estate investors were asked to name up to six emerging markets they are considering for investments going forward.

Catalyst investment manager, Paul Duncan, says while the rating seems to be low, South Africa’s commercial real estate market is in fact very well developed when compared with other emerging markets.

Regarding other emerging markets such as Brazil, China, Turkey and India, Duncan says: “Off a low base … their growth potential is massive. If you look at China, they have a market with the capacity for many Sandton City mega malls. Their retail market is still largely informal and mega malls are only starting to be developed.”

Duncan adds that investors who enter these markets early are likely to do exceptionally well. According to the survey, other countries that fared well in terms of perceived investment opportunities included Mexico, Russia, Poland, Malaysia, Indonesia, Colombia, Romania, Peru, Chile, Taiwan and Hungary.

Those on a par with South Africa are the Czech Republic, Thailand, Bulgaria, Singapore, Ukraine, Saudi Arabia, Japan and Qatar.

Colombia, Hungary and Qatar appeared in the rankings for the first time in recent years.

With regards to South Africa Duncan says: “From a commercial perspective our market is fairly well developed, well entrenched …South Africa’s established nodes are going to grow more like a developed market because a lot of our metropolitan nodes are already well established.”

Rural potential

Duncan says rural areas offer opportunities for local growth potential: “There are certain rural communities that have emerging market characteristics and thus they behave more like an emerging market. When you’re coming off a very low base there will be opportunities for growth.”

Listed funds such as Dipula and Synergy have recently ventured into these markets. In December 2011 Dipula acquired Bochum and Blouberg Plaza in Limpopo and the Nquthu Plaza in KwaZulu-Natal for R247.8m.
CEO Izak Petersen said at the time the acquisitions provided Dipula with an opportunity to increase its retail portfolio exposure to low income households, which were expected to outperform higher income households in terms of growth in the short- to medium-term.

Synergy Income Fund announced in September 2012 that it had purchased the King Senzangakhona shopping centre in Ulundi, KwaZulu-Natal and The Setsing Crescent shopping centre in Phuthadijhaba, Free State.
Duncan says government grants and an increase in disposable income is making these areas attractive to investors.

Areas which could provide growth include those where shopping malls are currently non-existent: “Your growth could be exponential. Securing the right location and the right tenants, is paramount,” Duncan said.

He added: “But there are real risks and there is no free lunch. Do these communities have a real reason for being there and is their existence and growth sustainable? Are strict planning controls in place? If not an investor may own the dominant centre today only to be squeezed out by a more dominant centre later.”


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