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Crystal-balling property’s performance

10-02-2015

Notwithstanding passable growth in house prices during 2014, the likely direction of real prices in the medium term is still south. This is the opinion of Erwin Rode, property economist and professional valuer at Rode & Associates.

On the back of a moderate relaxation in credit standards of banks, house prices were able to show growth slightly in excess of consumer price inflation last year. “However”, warns Rode, “there remain factors that are likely to dampen the growth in house prices this year.” Here he mentions as examples the still-high household debt levels, upward pressure on the cost of operating properties, declining commodity prices, a Treasury that is under severe pressure, power outages and a lack of formal job creation.

On the office-property front, Rode foresees that jaded economic activity and its adverse effects on employment and business sentiment will continue to dampen demand for office space. “In fact, because of the shrinking demand for office space and overzealous office developments, office-vacancy rates have, since the beginning of 2013, been rising. This explains why market rentals for prime offices have over the past two years showed sub-inflation growth,” notes Rode.

For the manufacturing sector — one of the main support pillars of the industrial property market — 2014 was a tough year. Market rentals for industrial property consequently also showed unimpressive growth. According to Rode, risks to the manufacturing sector, and hence, to the demand for industrial property, remain labour unrest, modest growth in retail sales, sliding hard-commodity prices, power supply interruptions, and the economic health of Europe.

With regard to retail property, key drivers of retail sales continue to signal the possibility of moderate growth in sales volumes, which will not bode well for retailer trading densities (turnover per m²) and the growth prospects for retail rentals.

One key driver of retail sales cited by Rode is the disposable income of households. In his view, there is a strong possibility that civil servant salary increases and employment growth will be curtailed quite severely in 2015, as the fiscus simply cannot afford more extravagance. Naturally, lower civil servant salary increases might mean downward pressure on the growth in household disposable incomes, as Government is the single largest employer in South Africa. ‘However, this factor will be countered by slightly lower inflation.’

At his firm's upcoming lunch event in Pretoria (sponsored by Wall it) and breakfast event in Cape Town (jointly sponsored by C2M Chartered Accountants Inc. and MHI Attorneys), Rode will discuss — in Afrikaans — these issues and the general outlook for property investments. Economist Dawie Roodt, director and chief economist of the Efficient Group, will in turn closely examine the economy as a whole with his topic “Goed, sleg, lelik, en bloot dom: jou ouma se advies aan ekonome”.

For more information regarding these events please visit Rode’s website www.rode.co.za or contact Lynette Smit at 012 664 4159 / 082 323 5799 or lynette@rode.co.za.