HEIBERG ESTATES NEWSLETTER MARCH 2019

WILL THE ELECTIONS OUTCOME GIVE US THE LONG AWAITED “NEW BEGINNINGS” RESULT AND STIMULATE THE SA PROPERTY MARKET?

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Dear Property Partners

In spite of the silver lining around the thundercloud scenario over the whole SA Property Market for a prolonged time now, we are not out of the doldrums yet – as clearly demonstrated by recent statistics and interesting facts as highlighted below.

However, it is clear that there is a new increasing vibe of expectation and positive excitement regarding the outcome of the elections to be held in just over a month on the 8 May 2019. Workable new plans, also in specific referral to an increase in new infrastructure projects as envisaged by President Ramaphosa, will be implemented to create sustainable jobs, increase our economic growth rate and also subsequently impact positively on our property market.

There must have been numerous reasons why yesterday, the SA Reserve Bank in a unanimous decision did not increase the repo rate, keeping it stable at 6.75%. One of those reasons might have been a strong consideration to keep the status quo in the wake of our nearing elections in about 5 weeks’ time, maintaining stability and a “political neutral image”.

We are well aware of the prolonged economic and political period of instability and uncertainty that manifested in prolonged economic stagnation. Hopefully our challenged SA Property Market will at least soon, after so many Buyers have been playing a wait-and-see game, be entering a new phase of recovery with an expected higher economic growth of around 1,3% this year which in turn, hopefully will re-activate buyer confidence. Our growth rate for 2018 was 0, 8% but economists predict in general, that hopefully it will grow between 1, 3% and 1, 5% until the end of the year – Eskom willing…

Eskom’s current crisis to supply in the country’s power need, is not improving the outlook for the property sector except where we see that houses with alternative back-up sources like generators or solar panels, are increasingly in demand. Until full restoration of power supply by Eskom which we are aware will take a number of years to come, it will have a major impact on demand for properties, be it residential or commercial and will serious thought have to be given to new developments to go “green” and off the grid as far as possible – costly and impacting on ever increasing property prices.

Looking at our GDP, it is important to note that the GDP figures does tell a positive story in specific referral to the SA Real Estate Industry that still made a mayor contribution to our very low economic growth rate of 0,8% as recorded last year.

The existing Buyer’s Market is expected to prevail well after the elections with increased stock on the market. This does stimulate Buyers interest where extremely well priced property, some below market value, can offer unique investment opportunities across the board. As long term investment decisions have been in a holding pattern as potential property investors ponder the realities of what awaits us in 2019, the outcome of the elections will also give investors an indication of what direction the country will take in the next few years.

Some of the latest commercial and residential released statistics and interesting facts, as follows:

  •  Looking at the Commercial Property Sector performance over the past 22 years between 1996 and 2016, John Loos FNB property analyst, reports that the average capital value increase per square meter for Retail Property, has far exceeded that of the Office and Industrial Segments and it has increased by an estimated 877.4% over the 22 year period! By comparison, the Industrial/Warehouse Sector increased by 544.8% and Office Space by 523%. By comparison the House Price Index increased by 670.9%.
  • Also interesting to note on the Commercial side, how operating costs have sky rocketed due to ever increasing and way above the inflation rate, water- electricity- and Municipal Rates. Retail Property operating costs per square meter, have sky rocketed to a massive 908, 1% from 1996 to 2017! But – on the other hand, the cumulative price increases in retail base rentals increased to 720.9% over the same 22 year period. This compared to the 348.2% price increases for Industrial and 317.1% for Office Space.
  • SA Property Insider reports that Shopping Centre space developments are in decline in urban areas due to oversupply. Approved new Shopping Centre development space, declined by ±88% year-on-year last year. There was also a slight decline in the Industrial Sector and new developments – more or less on par in comparison with the year before.
  • In comparison and in specific referral to the residential sectional title segment, year-on-year growth in approved plans came to 64.1% – clearly indicating the increasing demand for smaller, easy manageable and cheaper houses. We are also observing that older people are selling their properties and down scaling earlier than they originally planned for. Only 3% more residential building projects were concluded in 2018 than the year before.
  • The latest electricity tariff increase, will further challenge affordability and the total budget of prospective Buyers, especially in the lower price ranges where first time Buyers are the most in the firing line. Interesting to note that the cumulative increase in the electricity rate over more or less the past 10 years, was a massive 275%! In comparison water price increases over the same period has been around 147% and the next 10 year escalation bound to be much, much more.
  • With our ever continuing fuel-, electricity-, food and other price increases, it is visibly impacting on the demand for well situated sectional properties, located close to the workplace, schools and all amenities in order to safe costs and which are more economical to run on a month-to-month basis.
  • Our inflation rate for now seems to be under control but there are many outside influences that is presently putting upwards pressure on our economy as well as the stability of the inflation rate, e.g. in January it was 4% whilst the SA Reserve Bank predict an average inflation rate for this year of 4.8% – this prediction before the latest Eskom debacle which inevitably is going to impact in a major way on the longer term also taking into account the latest tariff hikes as announced.
  • In 2010 27.9% of residential plans approved was sectional title – this increased to 40.9% last year.
  • Looking at the percentage of sectional title properties of total residential sales, it increased from around 21% as recorded in 2010 to an average of around 26.5% last year. In Gauteng it increased over more or less the same period from 27.4% to 34.2% and in the Western Cape from 14% to 19.7%.
  • The FNB House Price Index recorded a year-on-year price increase In February of 3.7%, lower than the 4% recorded in January and the 3.9% annual increase recorded during 2018.
  • Interesting to note that between 2016 and 2018 the proportion of properties sold below asking price, averaged 91,6% compared to the average of 85,2% three years prior.
  • The prolonged lack of Government spending on civil and economic infrastructure, has become alarmingly visible in the construction sectors where well-known construction companies like Murray & Roberts, Basil Read and Group Five are in deer straits to hold their heads above water. The Construction Industry has had its worst year in two decades last year where production slumped to 1,2% – the industry’s biggest annual fall since 1999 when activity fell by 1,4%.
  • The total value of construction projects, decreased by 15% last year as recorded by “Industry Insight” – more or less on par with the stats as recorded during the worldwide financial crisis in 2008.
  • Just a general interesting fact for those still thinking of emigrating, and despite the ongoing Brexit saga, the world’s wealthiest city is still London, followed by New York, Hong Kong, Singapore and Los Angeles. London also has the highest number of ultra-high net worth individuals that has net assets of more than US Dollar 30m (around R425m or more), namely 4 944, whilst New York has the highest number of dollar billionaires (94).

Property has proven itself to be a long term safe haven investment, irrespective of outside influences and worldwide acknowledged as one of the most viable approaches to sustainable wealth creation.

We have however be realistic especially due to so many factors beyond our control like the weakening rand, ever increasing fuel-, electricity- and food prices just to mention a few. One major factor being the unreliability of Eskom and the impact that ever rising electricity prices have on inflation and which inevitably will be a factor in the consideration of the SA Reserve Bank to keep our interest rates stable or to increase it in the near future. We all are aware that interest rates and economic growth both impact on the demand for property and its resulting performance.

Since talks of land expropriation without compensation started (but also taking the drought factor into account), the value of farm prices in our beloved country dropped by 32% as recorded by data from the Deeds Office property registry. We can just hope and trust that President Ramaphosa will keep to his undertaking that land reform will happen within a rule of law and in line with the Constitution and processes will be conducted in a fair, just, equitable and transparent manner.

Vital for the short-, medium and long term property investor, will be the outcome of our elections to be held in more or less 5 weeks’ time where there should be much more clarity in terms of our political and economic policy framework. Hopefully political and economic stability we all have been waiting for many years now, will gain momentum in the aftermath of the elections. The latter of vital importance to create renewed foreign interest and investments in our fragile, worn down country.

But once again, the onus is on the individual to decide whether the glass is half full or half empty. With that in mind, please refer to our website, offering excellent property investment opportunities at www.heibergestates.com with videos and photographs to entice your appetite!

We are on 24/7 standby to answer your questions, to guide you and advise you and to discuss the way ahead whether you are a Seller or a Buyer.

Never hesitate to contact us!

Best and warm regards

Sincerely

Bambie & Heiberg Estates Team