HEIBERG ESTATES NEWSLETTER: FEBRUARY 2020

NEWSLETTER 2020.2

Dear Property Partners

With land expropriation without compensation causing more and more concern, especially amongst foreign investors, we need to put more pressure on government for final clarification and guidelines as to what will be the criteria and way forward in this regard. It is expected – just a question of time and how…. And they have time until 29 February to give us answers. It is a worldwide recognized fact that fundamental property rights are one of the cornerstones of any country’s economy and regarded as one of the most important securities for any bank to approve financing.

Furthermore, our agriculture sector needs food provision security, especially as our country is recognized as the Gateway into Africa and the breadbasket at this most southern point of the African Continent. Land expropriation without compensation is becoming one of the biggest factors to delay foreign investors to put their money in this country. In the process also delaying the much-needed job creation and expanding our taxpayer’s foundation. Thus, also directly further playing a negative role in our property market regarding deteriorating sale volumes across all sectors in our fragile property market and putting further downwards pressure on property prices.

Our economy is in a rapid downwards spiral and should fundamental property rights not soon be guaranteed amongst local- as well as foreign investors, more and more people will look for safer property investments elsewhere and leave our beloved country – a trend already visibly increasing amongst all sectors of our rainbow nation.

A further huge challenge is ESKOM with renewed load shedding announced – now if a potential further 5 years!! It will have huge consequences across the board for our property market, especially taking new developments and our already pressurized and fragile Commercial- as well as Office Park segments, into account where occupancy rates are falling on a continuous trajectory. Eskom’s latest announcement will for sure be considered by Moody’s re. the much-expected downgrade to Junk Status. There is indeed very little left to convince them not to downgrade our economy to junk status, and this will inevitably also have a further huge negative impact on our fragile Real Estate Market.

Bankruptcy is staring a growing number of our municipalities in the face due to corruption and mismanagement, also playing a role in much expected higher than the inflation rate, monthly increases in rates and taxes, water- and electricity prices and other municipal costs. This also further impacting on operational costs and decreasing returns on investments in every sector of our pressurized property market.

So, all in all – it will be yet another challenging year for our fragile SA Property Market. Some of the latest interesting facts and statistics, as follows, this month I’m focusing more on our commercial sector in general:

  • Looking at the commercial sector, it is expected that our property market will remain to be stagnant with vacant office space expected to increase – resulting in downwards price pressure on rentals, capital depreciation and low single figure price increases – if any at all.
  • Vacant prime office space recorded the previous quarter was a record 10,6%, with unexpectedly Rosebank showing the highest vacancies of 17,9%!
  • SAPOA reports that 13 out of every 100 prime Office Blocks in our country, has vacancies of more than 30%!
  • One of our most widely recognized property economists in SA, Mr Erwin Rode reports that Eskom also contributed to the national office vacancy figure of 11% recorded last quarter and that load shedding will play a major role in continued and escalating office vacancy figures for the next 3 years!
  • Interesting to note that in order to fill the present empty standing office space in our country, 22 000 jobs will be needed – and we know it won’t happen. Our unemployment problems are widely regarded as presently the worst in the world where more than 10million of our people, are jobless – more than the unemployed figures combined in America and Germany!
  • Problems with Eskom’s load shedding forces people to look at alternative ways to provide electricity like buying and installing generators with much higher running costs, furthermore operational costs are running away with electricity prices as is, running sky high. In 2000 electricity costs made out 19,2% of operational costs – last year it was 29,8%%! Thus, also lowering profit margins and putting further downwards pressure on property prices.
  • One of the latest FNB property reports point out that direct related financial pressure commercial sales last year, went up from 39,5% of all sales during the third quarter to 47,11% in the last quarter – with the highest percentage recorded in Cape Town (60.5%), followed by Pretoria (57.1%) and the greater Johannesburg area (45%).
  • Regarding residential sales, FNB’s Residential Property Barometer for January 2020 shows y/y residential price increases of 3.3% versus 3.5% recorded in December 2019. There was a mild increase (expected as people buy/sell towards the end of the year), especially in the middle towards higher-priced segments.
  • Increasing market activity at the end of last year also impacted on the time houses were on the market before being sold – it took an average of 13 weeks and 5 days to sell during the 3rd quarter, and this period shortened to 12 weeks and 2 days during the last quarter 2019.
  • House prices increases for 2020 are widely expected to increase very moderately, and below our inflation rate with an estimated 3.7% y/y.

Minister Mboweni’s Budget Speech announcement a few days ago that with the first R1m on property purchases no transfer duties will be payable (it was previously R900 000), will have a positive impact on first time buyers in the lower price segments, whilst the highest rate will remain to be 13% for properties sold for more than R11m.

In conclusion, the SA Real Estate Market is clearly going to face another challenging year with low single figure price increases, expected to be under the inflation rate. BUT – this fragile and price competitive market will still offer excellent and sometimes below market related properties to buy, offering excellent buy-to-let property investment opportunities.

With best and kind wishes from your 24/7 on standby Heiberg Estates Team.

Sincerely

Bambie Heiberg

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