Just as South Africa wakes up to the fact that the residential property bubble has burst and prices are falling, another property sector, the commercial sector, is about to hear the sound of pawpaw hitting the fan.Like the residential bubble, the mainstream media has all but ignored the fact that the commercial property market was built on easy credit and lax lending standards. As Noseweek details in this months issue, the good times are over and banks are facing massive writeoffs.
13 comments:
Hmmm...strong headline...bubble burst...my instincts tell me hogwash but then I am not privy to the entire article. Tough times I see, decline...yeah, maybe but bubble burst...this intimates mayhem and collapse...if Cape Town's bubble bursts, then so does the rest of the country and along with it our entire listed property sector including Old Mutual, Liberty, Stanlib, Nedcor, Growthpoint, Redefine, Emira, etc all of whom are exposed to retail property en-mass...somehow I think not...whilst trading conditions are tough, gearing in the sector is exceptionally low, interest rates are on a downward spiral, private investors coming back in droves propping up demand...methinks this is a typical newspaper selling headline but I will keep an open mind and observe...
...to follow on, here's my point...
http://www.eprop.co.za/news/article.aspx?idArticle=11374
...not only a significant investment in Cape Town retail, but just take a look at the low gearing! This property will have a hefty cash surplus even if some tenants take strain.
Commercial property like malls are mostly owned by companies iwth deep pockets who can afford to ride out recessions.
Despite the downturn in the economy, property developers are planning to build more commercial and residential properties. They know full well that now is the time to build as construction companies are hardup and building costs are stable.
Companies like Old Murual who has several mega malls and tons of small commercial developments are still making returns that beat the banks rate even with low occupancies.
And just because Noseweek prints it doesnt mean its true. This magazine is a sorry excuse for an attempt to discredit all and sundry and is being run by a washed out attorney who couldnt cut it in the legal trade.
A period of stagnation perhaps, but I also wouldn't call it a bubble burst.
Recessions are good times for re-investment. We also have lower rates to cancle out the bad debts from non-paying tenants.
I recon commercial property should remain fairly stable.
How can there be so many doubters concerning an enormous economic fallout? SA is part of the global economy, isn't it? The first world and I suppose the first to take these hits is now entering a second wave of mutilation. SA is starting to feel the first now, so how can so many posters be ignorant to the global economy?
The answer lies in the fact that economics is only an exact science after the fact. It's also a fact that those who have the knowledge of what is going to happen are also those who are keeping the general public in the dark and creating a far more destructive bubble of security by trying to turn profits in the front of the store as they shore up in the warehouse. Lets not be suckers, the economy is about to collapse, and is collapsing now! The developing world will rebound only on the coattails of the developed, at least that much is certain.
I seem to recall reading somewhere that in the UK it is expected that 15% of high street shops will be unoccupied by year end.
I have certainly noticed that a lot of bars and restaurants have recently been closing in Cape Town.
If any one has followed the listed property sectors and property unit trusts, you would have noticed that the index had a massive correction in the middle of 2008 of between 30-40%.
This is because the market is liquid unlike residential property. Since then these unit trusts like the Stanlib Property Income fund have recovered significantly and have yielded returns of around 33% in the last 6 months! Income has decreased from around 10% to about 7% after tax.
The reason for the reduced yields is compensation for increased vacancies. Listed property is valued on a day to day basis and is liquid unlike property that is privately held.
Prime commercial property is in short supply and will always yield attractive returns to investors over the long term.
Privately held properties many were purchased by over zealous investors with bank money during the boom have yet to move with current market values. If they need to dispose of these properties many of which are no vacant should expect to shave 20-30% off what they were worth last year. The problem is the market is delayed as properties could take up to a year to be sold through property brokers.
Stephen Leppan
Financial Advisor
www.stephenleppan.co.za
PS: Great Blog
Pop goes the weasel....
House price falls during year to end Q1 2009, the worst ever
http://www.globalpropertyguide.com/investment-analysis/House-price-falls-during-year-to-end-Q1-2009-the-worst-ever
I dont think any of the previous doubters even go out much, or look around when they do. I guess they dont run a business and work for a salary, far away from any economic reality and decision making besides what to buy for dinner. Either that or they inherited and never worked for their money.
Any twit can see how many to let and auction signs there are around Cape Town or read how many restaurants have gone bang in the last few months..
How many people in S Africa have jobs even when the economy IS strong? But, face it, if S Africans were halfway intelligent there would have been a full on revolution years ago.
that's nice to buy a property in south africa,especially in cape town.for more information check http://cometocapetown.com
Great article as for me. I'd like to read something more about that matter. Thank you for posting this material.
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