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Property Prospects Still Buoyant

16 October 2006

The industry should absorb negative effects of interest-rate hikes, reports David Jackson. The South African property market remains in a relatively buoyant and upbeat phase, despite underlying concerns about rising inflation and a new round of interest-rate hikes.

The property and related construction industry is gearing up for four years of heightened activity in the build-up to the 2010 Soccer World Cup and the Gautrain project. And the buying power of first-time black home-owners in the residential property market is being recognised.

Neil Gopal, CEO of commercial property organisation Sapoa, says the rising interest-rate environment as a result of increasing inflation and consumer debt levels wilI no doubt have certain implications, but certain segments of the market may be affected more than others. He says township retail developments will probably be affected as the target market will feel the effects of the rate increases.

“I believe if rates continue to increase then it will have an effect on property values. However, I don’t foresee any significant increase in rates immediately and believe an increase will be absorbed by the market.”

Gopal says that international issues such as the Iranian-US standoff could have more of a negative effect on the economy as a whole due to the effect on oil prices. Mike Lomas, CEO of Group Five, says a notable trend in the residential property sector is the number of first-time black buyers entering the market for houses in the R400000 to R700000 category, showing the long-predicted arrival of the emerging black middle class is a reality.

“This segment of the market has changed, and it is driven and underpinned by black economic empowerment. There are a lot of people reaching this level of affordability who were not in the market before.” He says the property market is also set to reap beneficial spin-offs from mega projects such as the Gautrain rapid-rail link in Gauteng and the construction and infrastructure build-up to the 2010 Soccer world Cup.

Lomas says that if construction work goes ahead to the tune of the reported R300bn to R400bn “the money will find its way into the pockets of people who will want to buy  
assets, and it would underpin another phase of growth in the residential market.”

There are potential spin-offs in property development from the Gautrain project, for example at stations, says Lornas. He says that although demand may vary and flatten out a little after 2010, the impetus of World Cup-related projects is likely to see investment sustained to about 2014. Group Five, which has a strong focus on industrial and commercial segments of the market, is fmding there is a lot of demand for industrial land. Group Five Property Development Services has launched the Woodmead Business Park in Gauteng as part of a wider development known as Waterfall City. Waterfall City will cover about 2200ha.

Development plans include a residential golf estate, a retirement village, retail shopping, an equestrian estate, office and commercial parks, a clinic and a school, all to be developed on a large-scale leasehold basis. Meanwhile, there are signs of a revival in demand for office space that could slow down the rate of conversion of redundant office blocks to residential apartments, notably in Cape Town.

Keen demand for office space in central Cape Town has been spurred by both demand-side and supply side factors, says Gavin Klerck, development director of CBS Property Group. Market fundamentals have swung back in favour of the office sector and demand is on the rise, he says.

“We haven’t seen this volume of demand for offices in the Cape Town city centre in more than a decade.” Allister Long, MD of Powerhouse, says that with a growth rate of more than 12%, the property market is still a sound place in which to invest.

(Businessday, 16 Oct 2006)