South Africa is in super cycle stagnation phase and moving into a volatile period and, therefore, diversification of portfolios is certainly justified, FNB Commercial Property Finance economist John Loos said, speaking during hybrid fund Fortress REIT’s webinar on June 29.
Loos explained that the country has been in a super cycle stagnation phase since the global financial crisis, with this engendering heightened anger and tension, as seen in examples of service delivery protest and unrest.
The country is, therefore, moving into a volatile period, he said, which would see political tensions rise amid the fighting of political battles, and a period of great uncertainty until these are won.
The country needs to undertake vital structural reforms, but the hard political battles need to be won first, Loos said, and government will need to show the political will to force through positive structural reforms.
It will be some years before the benefits of these reforms are felt, Loos stated, and in the interim, stagnation and volatility will remain.
With that is the property market correction phase, he said. He noted that this was not a great time to be investing overall.
In the meantime, to mitigate this period of uncertainty and, while waiting for positive structural reforms to take the market into an upswing circle, Loos advised that it was best to diversify offshore, where growth fundamentals are somewhat better.
He emphasised that it was justified to diversify at times like this.
“South Africa will have to go through a political and policy process first before getting to better long-term economics and property times. This is not confined to structural reforms, but also, the country needing to find its next big competitive advantage,” Loos said.
Central and Eastern Europe (CEE), in particular, has attracted significant interest from South African investors in real estate who have sought to diversify their portfolios, and speakers acclaimed that the region is the property frontier for offshore investments in real estate investment in logistics and retail.
He said CEE presents a market that is not saturated, and yield levels provide returns that can be very pleasing for investors.
Moreover, the quality of personnel in these countries was highlighted, with a highly educated and trained labour force that is still financially viable.
Following the impact of the pandemic, CEE is also expected to see growth recovery that outperforms other global markets.
This is driven by the region being strategically located, close to the large manufacturing hub of Germany; and the bridge between highly productive Asian economies and rich western economies.
Moreover, CEE is rapidly changing and diversifying its economy, moving from being a manufacturing-dominant hub to a service and technology centre.
Moreover, the region is seeing rising consumption demand, which compares with lower growth in South Africa.
In CEE, growth in the next two years in expected from all areas of real estate, with the retail sector and logistics especially emphasised.