Our July commercial property auction sales in Johannesburg, Cape Town, Durban and Port Elizabeth will give fantastic insight into the property market and whether the much discussed property recovery is real or not.
July will tell us two critical things: firstly what the macro-economic environment is doing and secondly what positive effect the world cup has had on South African market investor sentiment. Auctions are an immediate response to the market, much like a stock market, and we believe that our multi-million Rand sales immediately after the Fifa World Cup will be a great indication of the market’s pulse.
Auction Alliance will be taking over R700million worth of saleable real estate to the market in the first two weeks of July which include shopping centres, game farms, industrial complexes, office blocks, luxury homes, a bankrupt golf estate and several commercial property portfolios.
The South African property market is coming to terms with the economic recovery and whilst the market is still in for a bumpy 6-month ride, investors are coming to terms with the fallout from the economic crisis. South Africa is now firmly entrenched on the world map due to world cup exposure and one cannot underestimate the years of successful marketing that the soccer games have afforded us.
As a company we have already had large interest from foreign investors in local assets during the games, and we believe that whilst the next six months are still going to be bumpy, we will have see many visitors coming back to South Africa for the summer holidays and to invest in our modern and developing economy.
Although the South African economy has returned to growth, the recovery is likely to remain lackluster as the initial boost from the world cup fades. In asset markets, the turmoil in Greece and the eurozone has led to renewed risk aversion in equities and offshore currencies and it is our view that people will look to directly owned properties in the stable South African commercial property market. .
Positive post-world cup sentiment will alleviate some of the pressure on commercial rentals, the underlying situation will remain difficult in the short term but should recover towards the end of the year. High levels of spare capacity in the economy as a whole are mirrored for commercial property – vacancy rates remain elevated. Add in the weak prospects for employment growth and the need for companies to rebuild profitability and productivity, and we continue to expect weak overall momentum behind rents over the next six months.
Investors will want to identify the specific regions and cities that are best and worst placed against the very different dynamics of economic growth over the next decade. Cape Town, Johannesburg, Pretoria and Durban are four of the safest markets to invest in today, and since the country is now at the “tail end” of the storm, investors will continue to seek out core rather than opportunistic markets. Whilst liquidations of property developments are definitely up, we do not foresee a wave of distressed assets coming from the banks.
Commercial property investors are faced with the same challenge as those in other asset markets: reconciling a view on value from a fundamental earnings perspective with a relatively volatile investment market, where liquidity and risk appetite moves rapidly. Our view is that a countercyclical approach to risk, which enables managers to secure relatively favorable pricing, allied with a strong grasp of fundamentals, will deliver a sustainable source of outperformance.
What do you think?