Property Research Articles

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Why do you need an engineer

Justin Coetzee:  September 2016

If you submit plans to a municipality for approval to build a new house, undertake a major renovation or construct a new office building or shopping centre, then more than likely you are required to have a Professional Engineer involved in your project. The obligation to use an engineer emanates from the National Building Regulations and Building Standards Act 103 of 1977 and the National Standard SANS 10400: Code of Practice for the application of the National Building Regulations.

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The financial case for ‘green’ affordable housing

Danelle Veldsman:  July 2016

The swelling momentum in the affordable housing market in South Africa is evidence of robust growth in an otherwise largely flat residential sector.

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A tool to calculate covered office parking rentals – anywhere

John S. Lottering: June 2015

Ever since the first quarter of 1993, Rode’s Report (RR) has been publishing average monthly parking rentals for office buildings by grade. In this issue of the report, we attempt to quantify the relationship between office parking and office rentals.

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Vacancy rates above their estimated ‘natural’ levels

John S. Lottering & Anneke Meijers: March 2012

Owing to slowing economic activity, office vacancy rates have over the past three years edged north and, in general, are now above their estimated ‘natural’ levels.

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Houses overvalued by 25%: A rejoinder

Erwin Rode: February 2012

It appears estate agents and house investors and other stakeholders in the housing market have experienced serious anguish and denial following the launch of Rode's Report (quarter 4 of 2011) on 26 January 2012. At the press conference I stated that houses were fundamentally overvalued by at least 25%; furthermore, that house prices will, as a consequence, decline in real terms over many years (unless one assumes a quick collapse like in the USA).

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Haunting questions around the protection of our cultural heritage

Marie Lou Roux and Kathy Dumbrell: June 2011

Heritage practitioners and other concerned parties in Cape Town are up in arms. The war of words was prompted by the proposed addition of a parking garage and office block on top of a dilapidated warehouse built in the VOC era, situated in the so-called Lutheran Church block in the Cape Town CBD. Since heritage has economic (tourism) value, we should all be concerned when we destroy our heritage, whether through wilful neglect or otherwise.

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How to avoid Deeds Office pitfalls

Meyer de Waal: March 2009

An onerous title deed condition that isn’t discovered in time could delay or prevent the progress of a property development – with serious cost implications. Alternatively, such an omission could be costly when buying or selling property.

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How to lick the cap rate problem (well, almost!)

By Erwin G. Rode, who is a professional valuer: January 2007

Originally published in Rode’s Report on the SA Property Market, issue 1989:3, but updated and expanded in January 2007.

The two crucial determinants of income-producing properties’ market value are market rentals and capitalization (cap) rates. By comparison, all the other determinants are incidental.

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Tumbling standard capitalization rates create a trap for valuers and analysts

Erwin Rode : December 2004

In the residential property market, estate agents and valuers have a serious problem in estimating the market value of a house. The reason for this is the phenomenon of galloping prices that invariably means that the historic comparable sales on which an estimate of market value is based, are outdated the moment they become available to market players.

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Investment returns: How cash beat property (and a few other asset classes besides)

Erwin Rode: July 2003

The below-par investment performance of most South African retirement funds over the past few years was recently again put under the media spotlight. Yet, some asset classes have done exceedingly well over this period. This begs the question whether fund managers have been prudently weighing up the weights of the various asset classes in their portfolio mixes, and whether these managers should have read the signs of the times better — not with hindsight but foresight.

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Are the property market’s hurdle and escalation rates too high?

Erwin Rode: July 2003

Hurdle rates required by investors to induce them to invest in property were basically un-changed at 19% in quarter 2003:1 — a level at which they have been for many years. At the same time, the leaseback escalation rate got stuck at 10% or higher. This is in spite of the dis-inflationary environment in SA, the generally favourable prognosis for long-run inflation and the long-term character of property investments.

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A new tool to calculate the standard capitalization rate of shopping centres

Erwin Rode: October 2002

Ever since the fourth quarter of 1991, Rode’s Report (RR) has been publishing regression equations to calculate the capitalization (cap) rate of office-building and industrial-building properties. These equations are based on the premise that the gross market rental com-manded by a property, is a crucial determinant of its cap rate.

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Market rentals do not necessarily follow escalation-rate path

Erwin Rode and Dirk De Vynck: August 2002

In an inflation environment, the purpose of contractual rental escalation rates is to obviate the need to renegotiate the contractual rental once a year or so. In a hyper-inflation environment, this “or so” could be monthly, of course. Instead, the periodic in-lease rental escalation is an attempt by the parties to the lease to forecast the growth path of market rentals over the duration of the lease. Hence the market escalation rate on rentals is at any one time nothing but a forecast by the market of the probable growth rate of market rentals over the duration of the lease.

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Rather bonds than property

Erwin Rode and Dirk De Vynck: August 2002

It is hard to believe that 15 years ago, the market rated listed property far superior to long bonds, a situation that has since been totally reversed. The question is why?

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The use of Haylett in a low inflation environment

Dirk De Vynck: May 2002

One of the outstanding features of the new South Africa and the ANC-led government is its stable macro-economic policies, with lower inflation being one of the biggest beneficiaries. This begs the question if the Haylett index is still needed since it was implemented with the inten-tion of compensating contractors for cost fluctuations in times of high inflation.

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Institutional property returns set to tumble

May 2002

The nominal returns of institutional property have been in a secular downswing for the last 20 years, and the expectation is that this year the trend will continue. However, institutional property’s average real total return of 5,2% p.a. for the last 25 years still beats the perform-ance of both long-term gilts and cash.

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Property’s promising performance

Erwin Rode: May 2002

The South African government sold the first inflation-indexed long bond in March 2000. Bids ranged from 10% to 5%, and only a small amount of nearly R500 million of the R189 — maturing in 2013 — was allotted at the cut-off price of 6,5%. The second inflation-linked bond, the R197 (maturing in 2023), was issued in May 2001 and initially traded at a yield of about 5,7%./p>

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Property forecasts for 2001

Erwin Rode: January 2001

Way back in 1978, when I started doing my first tentative property forecasts, life was simple. The forecaster could assume, and bank on, an inflation rate of 15% or so. All metropolitan areas and all property types were growing at a similar rate, or so we assumed, because nobody knew better for want of statistics. There was no decaying node, no crime crisis. There were no sharp hikes in municipal taxes or interest rates. Capitalisation rates were pretty stable. Hence the risk of owning property was low and property was still regarded as an inflation hedge by the investment community. And it was cheap to finance property with loan capital.

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Sign that long lease now!

Erwin Rode: March 2001

After more than a decade of austere monetary policy, South African property players are at long last lowering their profit and growth expectations.

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Incorrect valuation leads to rates overpay

Erwin Rode: July 2001

We are all so engrossed in our daily lives that we far too often miss important milestones in our hectic lives. One such a milestone for Johannesburgers is the fast-approaching deadline to object to the new general valuation appraisal of their properties.

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Are House Prices Discounted?

Erwin Rode: October 2000

Commentators sometimes claim that house prices are about 25% below replacement costs, and that, hence, there is great upside potential for prices.

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The CBDs and HIV: a big smash is coming

Erwin Rode: July 2000

Shop rentals in the CBDs of South Africa are sliding. According to Rode's Retail Report on South Africa for quarter 2000:3, shop rentals in the CBDs declined on average by 13% in the second quarter of 2000 compared to a year earlier. Over the same period, decentralised shops on high streets grew by 3%.

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Prospects for a rerating of listed property

Erwin Rode: May 2000

Two years ago, listed property in SA stood at a discount of about 30% to directly-held real estate. This meant that there was a huge difference between the capitalisation rates of directly-held property on the one hand and the forward dividend yield of listed property on the other. Theoretically, by delisting, property companies could have made a windfall profit.

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Property’s promising performance

Erwin Rode: March 2000

The South African government recently sold the first inflation-indexed long bond. Bids ranged from 10% to 5%, and only a small amount of nearly R500 million of the R189 – maturing in 2013 – was allotted at the cut-off price of 6,5%.

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Is Capital Gains Tax bad news for property?

Erwin Rode: February 2000

The government’s announcement of the introduction of capital gains tax (CGT) as from next year will have a profound impact on the way investors behave. This includes the property market.

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What makes property different?

Erwin Rode: February 2000

Some investors grow up believing religiously in the infallibility of bricks and mortar as an investment class, others will never be convinced. It may have a lot to do with one’s risk profile and degree of ignorance.

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Here’s an investment for pensioners!

Erwin Rode: January 2000

Those of us who were brought up in an inflationary environment thought that this was how the world normally functions. Not so. The history of the world’s major economies shows that through the ages the normal state of affairs has been no or little inflation. Economists seem to have reached consensus that South Africa is now heading back to this normal state of affairs, lagging the rest of the world by about a decade.

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The reason(s) why Cape Town house prices boom

Erwin Rode: January 2000

It is common knowledge that throughout the 1990s house prices in South Africa did not keep up with consumer inflation. The exception of course was your favourite metropolis, Cape Town, which bucked this trend quite dramatically.

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Property poised for super performance

Erwin Rode: November 1999

Since timing is so crucial for property investments, it is worth dwelling on the property cycle, and where we are in this cycle.

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Timing Timing Timing

Erwin Rode: November 1999

When buying a property, location is not nearly as important as timing. This seems to fly in the face of conventional wisdom, so I better explain myself swiftly before the lynch mob gets the upper hand…

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Prospects for property’s performance

Erwin Rode: October 1999

In the good old days – before inflation reared its head in the early 1970s – South African property investors didn’t worry about the “performance” of their real estate. Nor did they know how to calculate total returns (income yield plus capital appreciation) for a specific period.

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