The forum took place as a panel discussion between JP Landman, a self-employed Analyst on political-economic trends; Stan Garran, the Chief Executive Director and Head of IPD South Africa; Dr Azaar Jammine, Director and Chief Economist at Econometrix; and Estienne de Klerk, President of SAPOA.

The global economic recession may have impacted the South African economy but to a large extent the local commercial and industrial property sector escaped the downturn relatively unscathed. However, as interest rates look set to rise in the future, those in the property industry with exposure to debt need to be aware that the cost of finance is going to go up.

According to Landman, it’s important to differentiate between the financial economy and the real economy. “Bankers have done extremely well out of the whole crisis but this benefit hasn’t carried through to the real economies of the world. In spite of the fact that the global economic environment is improving – and a sense that South Africa escaped the worse of the recession – economic recovery will be slow.”

Added De Klerk, “South Africa was incredibly fortunate that we did not suffer through a liquidity crisis, however, we did suffer from a lack of economic growth. In spite of this, a number of property developers have done extremely well the past few years and the real estate market remains very buoyant with attractive yields still on offer.”

Asked how favourable South Africa is as an investment destination currently, Jammine maintained that the media tend to exaggerate negative stories coming out of the country. However, he argued that, while the country is not collapsing in the short term, what is worrying are the longer term implications for both local and international investment of political uncertainty, strike action and power outages, to name but a few. He also pointed out that the low levels of the Rand currently would go some way to encourage investment.

De Klerk maintained that, while the investment community was wary of investing in areas where political uncertainty existed, companies like Improvon have done well, although most growth had come from existing clients moving to new premises rather than new entrants to the market. “There is no doubt that we need certainty and confidence for economic growth to occur,” said De Klerk.
Having said that, he was also quick to point out that with significant inflows of capital - particularly from pension funds which are obliged by regulation to invest in property – the country was not dependent on foreign investment and capital.

Although African markets were generally still very undeveloped and most countries were coming off a low base, property investors were receiving good yields in these markets, said Garran. “You have to bear in mind that investments in these areas are very opportunistic. South Africa, on the other hand, is more solid and entrenched. You probably won’t get the same yields locally over the short term but then again, the yields investors are getting in Africa are not sustainable over the long term.”

Landman shared Jammine’s optimism. “We live in a world where headlines dominate,” he said. “And the situation locally is not as bad as the headlines imply.”

Where international investors are concerned it’s more about perceived risk than actual risk, maintained Garran. “If you consider the trends over the past 10 years, they’re good. Many investors consider South Africa the gateway to the rest of Africa, the regulatory environment is good, managers are professional and funds are generally well run.” The problem, he pointed out, is that foreign investors don’t always understand the South African market sufficiently well.

According to Jammine, any growth South Africa is able to achieve will be due to growth in the rest of Africa. “At a time when exports to other regions are not increasing, exports to the rest of Africa are growing and a number of South African companies are establishing a footprint in Africa.”

Again Landman shared Jammine’s view: “If the trends of the last five years are anything to go by, SADAC will become the single biggest market for South Africa produce, replacing the EU as our biggest export market,” he stated. “Strong growth in Africa is already starting to benefit South Africa.”

On the political front, Landman announced that what he believes the country needs is a Leftist political party. “Contrary to popular opinion, the ANC is not a party to the Left, instead they are a Central Left party, or what Europeans would call a social democratic party. NUMSA, on the other hand, is a Left policy organisation. The DA, on the other hand, is a Central Right party.”

The value a Left party would bring to the South African political landscape, Landman opined, would be to push the ANC further towards the centre. “The first time that Gwede Mantashe criticised Robert Mugabe’s Zanu-PF party was when Julius Malema publicly supported Zanu-PF,” he pointed out. “A party to the left would do wonders for the ANC’s position.”
How likely is a split in the ANC alliance? According to Landman it’s not at all likely in the 2014 elections but is very likely by the following elections.

The impact of local municipalities on the property sector from a service delivery, rates assessment, billing and town planning perspective were enormous, the panel agreed. The current billing crisis in Johannesburg, they argued, was a perfect example. “Over the past five years residential rates have increased by 500%,” pointed out De Klerk. Commercial and industrial rates have been similarly impacted which has had serious implications for the sector, not least of which is that the total cost of occupation has increased significantly.

There is a huge systemic problem surrounding the financing of local authorities, pointed out Landman. “The real problem is the total insolvency of South Africa’s municipalities. One third of local government is totally unfunded while 26% of petrol tax goes to just nine metros. The situation is going to get a lot worse unless we find solutions to the problem. The answer is not to simply increase rates and taxes.”

De Klerk agreed that pushing up rates and taxes was not the solution. “If rates and taxes get pushed too high, property owners will start moving out of the highly taxed areas as a result and we’ll start seeing increased urban sprawl which will require additional services, infrastructure, electricity and so on to be installed.” Transport, logistics and highway development also contribute to behaviour in terms of real estate development, he added.

Uncertainty around the implementation – or not – of the e-toll system in Gauteng is nothing more than storm in a teacup, reassured Jammine.  “It has become a very emotive debate,” he agreed, “but even if they are implemented they will add so little to the overall cost of living as to be almost negligible.”While conceptually the e-toll system was the most advanced tolling system in the world, he does not believe they can work in practice.

Posing a threat to both the economy and in turn the property industry is the severe skills shortage in both local and central government. Much needed skills within the government sector are leaving to pursue richer pickings in the private sector, pointed out Jammine. “Official statistics put 13.7 million people as working in South Africa while over 16 million people get a cash handout for not working. We’re not solving the skills crisis and we need better leadership to address the problem of inadequate education.”

But Landman saw the issue quite differently: he argued that the trendline shows that in spite of an appalling education record, more people are being employed than in the past. “Education levels are being raised, we have double the number of university students that we had in 1995 and I think we are making progress in this regard.”

As green buildings become increasingly popular globally, the South African market remained relatively unsophisticated in this regard and are not demanding six star green technologies yet.  “Increasingly most new buildings are specced to green standards at either a three or four star level which means they have included a good layer of green technologies,” revealed De Klerk. “The challenge lies in retrofitting  existing buildings as the cost is carried by the developer while the benefit is for the tenant.

“In South Africa currently there is little demand for office space while industrial property is sitting at vacancy rates of between four and five percent. The supply of electricity is the factor that is holding back growth,” he argued.

This is the second year that Improvon, a leading commercial and industrial property investment company has hosted the Property Trends Forum, an event at which attendance has become highly sought after on the property calendar. “The forum was once again a very valuable event leaving delegates with a better insight into the factors impacting the commercial and industrial property sector,” says Improvon CEO, Jorge da Costa.