The different segments of the property market are experiencing different pressures, but all remain generally buoyant, with interest rates supportive of demand for property, said industry specialists during a webinar hosted by financial services firm Nedbank Private Wealth on May 25.
The impacts of interest rates, Covid-19 lockdowns and demand for property differed between commercial and industrial properties, said property valuation firm De Leeuw Group director Gemma Moore.
The commercial sector had seen changes in long-term demand for commercial properties, with leases typically being three to five years as opposed to ten years and, in many instances, rent-free periods had been offered to improve the attractiveness of available spaces, she pointed out.
"Office rentals are under pressure, with many rental reversions in Grade A offices and rental creep in Grade B and C properties that can push users to jump to a new property or a lower grade of property, and there are pressures on the lower grade of commercial properties, as well as increased demand for smaller units and in outlying areas," she said.
The industrial sector, meanwhile, has seen more resilient demand, which has remained strong in certain nodes. This is linked to the fundamental demands of the industrial sector, including location, accessibility and connectivity.
Further, property-specific attributes remain important for specific industrial tenants.
"In general, industrial rentals have not decreased, but have moved sideways. Logistics property demand remains strong, although these are often newer and purpose-built, with rentals being a function of the return on the development cost," said Moore.
Meanwhile, the residential property market remains buoyant and strong, with more than 240 000 property transactions having taken place during 2021, similar to numbers last seen in 2008.
There were 6.9-million registered properties in South Africa, with a combined value of R6.4-trillion, of which 81% were freehold properties, 7% are properties in estates and 12% were sectional title properties, said property market intelligence company Lightstone Property head of digital Hayley Ivins-Downes.
"Throughout the pandemic-impacted period, the property market did not fare as we had expected, and we saw a good and active property market, with prices holding, sales increasing, banks increasing lending and interest rates at their lowest in decades, which encouraged people to purchase property," she said.
Additionally, there have been significantly more building plans submitted for townhouses and flats than in previous years.
Meanwhile, house prices saw moderate inflation over the past two years, with the luxury market attracting 5% inflation, while general residential property prices increased by 6%.
Further, 60% of all properties are bonded, although a high percentage, at 40%, of property transactions are cash based.
"We are monitoring the effect of the recent interest rate hike and are seeing some slowness starting to come through. Prices are holding, but it will be interesting to see how various economic factors affect the market in the coming year," said Ivins-Downes.
Further, South Africa, and the world, have seen an interest rate rollercoaster over the past 18 months, which had a direct impact on the commercial property sector in terms of cost of funding and the ability to pay down debt on projects, said National Property Practitioners Council chairperson Vuyiswa Mutshekwane.
The changes in interest rates also impacted on projects' loan-to-value ratios and the attractiveness of investments, she said.
"This has been a big focus area for listed [real estate investment trusts] over the past 18 months by managing their LTVs," she noted.
Mutshekwane emphasised that environmental, social and governance (ESG) metrics were coming into sharper focus, as they impacted on the ability of some funds to attract capital and also impacted on pricing in some instances.
"Investors are aware of this and are looking at the ESG profiles of companies they are investing in, as an ESG strategy is linked to a company's risk management strategy, long-term growth and sustainability, as well as energy, waste and cost management," she said.
Meanwhile, logistics had emerged as a pocket of opportunity in the industry and, although impacted by Covid-19-related movement restrictions, demand for student accommodation remained high and was expected to increase as more students returned to campuses, Mutshekwane said.
Additionally, healthcare property was a new and growing part of the sector, while the residential sector was also seeing growth, she said.
"It has been a tough run for the past 18 to 24 months, with the possibility of more, but we are seeing many green shoots and sectors that present lots of opportunities," she added.
Other considerations for property investors were socioeconomic stability, such as the riots in July 2021 that reverberated throughout the sector, and the differences in provision of services and service delivery between areas, which affected the attractiveness of and demand for properties, Mutshekwane noted.
"While such risks must be considered among many other economic and external factors to determine risk profiles, rates, taxes and service delivery issues have a direct, tangible impact on the sentiment of a property market in a particular region, and even on the country's attractiveness at a national level," she said.
"Property investors and tenants want a property to be clean with good service delivery and reliable power supply and predictable rates and taxes that are managed and billed appropriately. Service delivery challenges can have a big impact on the vibrancy of a property market in a particular region," she emphasised.
Meanwhile, South Africa has published rental housing regulations for public comment, which seek to strengthen the framework that governs the relationships between tenants and landlords.
"While this is something that investors looking at buy to let properties need to familiarise themselves with, it is a push to create more clarity and provide a more transparent regulatory framework for the relationships between tenants and landlords," said Mutshekwane.
Significantly, the regulations would also impact on the informal rental housing market, which a significant amount of South Africa's population relied on, and would require lease agreements to be created, as well as to support greater tenant rights and the ability for them to exercise these rights, she said.
Further, the enacted Property Practitioners' Act is another key piece of legislation focused on regulating the behaviour of property practitioners and consumer protection.
Its aim is to extend regulatory power and authority over a greater group of people, including not only practitioners in the industry, such as estate agents, but also other players involved in the buying and selling of properties.
"The legislation provides more regulatory clarity for the industry, which is bound to help the industry function better and more securely, and support sound investment. However, the true test will lie in whether the authorities can implement and enforce the legislation and regulations," she said.