HEIBERG ESTATES NEWSLETTER: NOVEMBER 2019

 

 CHRISTMAS BELLS Dear Property PartnersCHRISTMAS BELLS

What a great month we have experienced with an exciting sense of unity and mutual goodwill demonstrated across the border ignited with our Springbok Rugby World Champions! If only we could ignite the same vision, same goal and tenacity amongst us all re. the future goals for our beloved country and working together to get our economy back again on the world stage. It is so true that the united TEAM factor could never be estimated and that we as a nation needs it more than ever before – Together Everybody Achieves More!

The fact that Moody’s Investor Services unfortunately downgraded South Africa’s outlook from neutral to negative, but still affirming the sovereign rating at Baa3, underlined the grave concerns about the state’s escalating levels of debt and stagnant economy. The road ahead is getting more uphill by the day. Both S&P Global Ratings and Fitch Ratings, has downrated us to junk status, and should Moody’s follow suit, SA will be excluded for the FTSE World Government Body Index, triggering outflows of an estimated USD15bn form the rand-bond market. The impact of a potential downgrade to junk status, will without any doubt also be very visible in our SA Real Estate market, as a downgrade will also raise borrowing costs and interest rates, the rand exchange rate will deteriorate with escalating inflation, more job losses, etc. etc. – and will negatively impact across each and every sector of our economy!

Our state debt currently is around 60% of our GDP and it is expected to increase to 80% in less than 10 years if our roller coaster political and economic state of affairs, is not stopped in its tracks very soon. The fact that the second biggest and opposition party is crumbling, does not bode well as it is healthy for any country to have a strong opposition party to keep government accountable. It is also of the utmost importance that the long-awaited guidelines and norms for land expropriation without compensation, gets finalized as these uncertainties also have a visible impact on potential property investors, especially developers, choosing to sit it out and first see what is happening. But fortunately, it seems to be gaining momentum now.

One can but hope that the Government second investment conference that was held successfully in Sandton earlier this month, with promises of R363billion over the next 5 years and creating around 412 000 new job opportunities, will have a positive impact also on our fragile property market. Especially since the Treasury expects our economic rate to grow at only a very low 0.5% this year and much lower than the initial forecasted 1,5% earlier this year. Time will tell…

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

  • Vacant office and retail spaces are on the increase all over South Africa, mostly due to our weak economy and so many uncertainties ranging from land expropriation without compensation, a potential Moody’s downgrade with interest rate increases on the horizon, Eskom, National Health Insurance, our volatile rand as well as growing unemployment just to mention a mere few. We urgently need visible actions from Government as time is running out to restore confidence to get any form of an upturn again. However, looking at the African Continent, it is interesting to look at the following average office vacancy rates in comparison to South Africa’s 15%:  Kenya 17%, Ghana 30%, Nigeria 61% and Mozambique 65%!
  • Where SA used to have been an economic leader on the African Continent, it presently has a real GDP growth rate of a mere 0.10% forecasted for 2019. It is interesting to note that in comparison, the following real GDP annual growth rates are projected as follows for our rival countries: Ghana 6.56%, Uganda 6%, Kenya 5.53%, DRC 4.5%, Botswana 3.78% and our neighbours Namibia also very much under pressure with -0.85%. Painful to see this comparison and how our state of affairs has deteriorated!
  • On residential rentals, landlords are compromising on rent to keep good and well-paying tenants as limited income growth in general as well as a lot of rental stock available in our price sensitive rental market, forces Landlords to limit yearly rental increases to a bare minimum. Presently our yearly national average rental growth rate is 3,99% whilst the current Gauteng rental growth rate is just over 4%. In 2017 it was recorded at more than double this 4% yearly increase figure, on 9%.
  • The latest building statistics released by StatsSA shows a definite decline in building activities and plans passed, in both office as well as retail space. This number of square meters completed for the past 4 quarters was -25.8% in comparison to the earlier same period and this trend is expected to be continued next year.
  • On the brighter side and despite the negative perceptions, property is and will remain to be a good and fundamental element in your basket of investments for long term wealth creation. A golden rule always being rather buy less but in the right location and not overextending yourself to leave space should SA be downgraded by Moody’s and inevitable interest rates will increase. And it will remain a Buyer’s market for the foreseeable future with nominal, low single figure increased predicted for some time to come.

The time is running out and time for our government to demonstrate with clear actions be it popular or not, to deliver on the promises they have made and to restore confident in our country and its people as a whole. Local businesses are the vanguard of the President’s investment drive and many of our local big corporates, did indeed promise at the Second Investment Conference held in Sandton earlier this month, to invest and grow our economy, most importantly creating sustainable jobs in the process – and this will also have a positive impact on our property market.

We are expecting for the foreseeable future that our property market in totality will remain to be very vulnerable, price sensitive and competitive, with continued subdued demand, longer sale cycles and continued low single figure price increases.

One of the most important factors considering making property investments, is to take a long-term view and to do good market research before buying a property where as always, location is and will remain of the utmost importance to ensure long term growth. From a residential market perspective broader economic development, also in specific referral to employment growth and subsequent affordability, will continue to dictate property market movements and longer term trends. High unemployment figures, our low economic growth and under further threat with a potential Moody’s downgrade, effect most industries on an ongoing basis as clearly visible also in our real estate markets and this scenario is expected to continue for some time to come until both local as well as foreign trust in our fragile economy is restored.

May the success story of the transformation of rugby in our country under the right management and leadership, also become visible amongst our leadership and may they lead with the same tenacity and by example with a common goal to get South Africa back where it belongs on the world stage. Also, as a merited political and economic leader on the African Continent. We have the capacity as a rainbow nation – we can do it if every individual pulls his/her weight and if each of us change our mindset to “What can I do for my country and for my fellow South Africans”! Every small step in the right direction, collectively will have a massive impact! The existing goodwill across the border can be a new cornerstone in our country towards growth, prosperity and a hope filled future for every South African.

Our very best and blessed Festive Season greetings to each and every one of you and your loved ones as well. Please be assured of our sincere gratitude to you for so many years of support and loyalty demonstrated on a continuous basis to Heiberg Estates,  and that we cherish it, every day!  You can always count on your Heiberg Estates Team for our continued 24/7 professional property service and advice and it is always a pleasure and privilege, to collectively share more than 30 years of real estate expertize with you!

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