Real Estate Investor Magazine South Africa November 2013 | Page 50

PROPERTY FORUM FIVE TRENDS THAT WILL INFLUENCE WHAT HAPPENS NEXT IN THE SA PROPERTY MARKET PROFESSOR FRANCOIS VIRULY Francois Viruly is a property economist with over twenty years’ experience in the analysis of the South African property market. Professor Viruly lectures in Urban Economics, Property Development and Portfolio Management at UCT in the School of Construction Economics and Management. W hile attempting to guess market trends is never an easy task it is nevertheless possible to suggest some drivers that will influence what happens next in the South African commercial and residential property markets. These trends invariably have social, technological, environmental, economic and political dimensions. First, global property markets are starting to strengthen, and it is likely that the South African property market will do likewise in the next two to three years. In the period 2002 – 2007 the South African property market went through a major boom with property values rising well above the inflation rate. In 2005 residential property values were rising by some 30% per annum. A similar trajectory was experienced in the commercial property sector with the Investment Property Data Bank (IPD) recording returns of some 30% in 2006. The oversupply of stock in both the residential and commercial property markets, hand in hand with the effects of the global financial crisis which tightened debt funding, resulted in a downturn of the South African property cycle in 2008. Although the performance of the commercial and residential property markets continue to be tampered by a sluggish macro economy, there is growing evidence that the number of investment transactions are rising and that vacancies are declining the commercial property market. The second trend is closely related to the growth of the South African middle class and the urbanisation of South Africa. Recent research undertaken by Unilever points out that South Africa’s black middle class has more than doubled over the past eight years. Demographic forecasts also suggest that over the next twenty years the population of the Gauteng City region will have increased by 10 million people. The greater densification of South African cities, combined with a wealthier African middle class, not only provides opportunities in the affordable housing market, but also provides opportunities for the growth of inner-city retailing and the revitalisation of older parts of cities that have suffered from urban decay. The improvement in South Africa’s urban transportation system provides a further important trend. Arguably this is linked to the growing urbanisation and densification of South African cities. Effective public transport systems alter the way the built environment is able to combine home, work and play. It also offers development opportunities at stations and promote different uses linked between stations. Added to this, a well-functioning transportation system can significantly reduce the amount that households spend on transport which means that these funds become available for expenditure in other spheres. The fourth trend relates to the growing impact that the Internet is having on the built environment. One can to a degree increasingly speak of a scenario best described as” Clicks and Mortar”. In a growing number of cities across the globe information technology has influenced the way that cities are managed. This includes fine-tuning transportation systems and the ability of city managers to provide households with critical data and warning systems. Information technology has also altered the manner that retailers interact with shoppers. For instance, information technology has redefined the way that books and music are acquired by shoppers and is now starting to influence the sales of clothing and groceries. As a result, shopping centres are finding new ways to attract shoppers - for instance retailers are offering price discounts on items that are acquired on the Internet but collected at a physical store. Finally, investors are rapidly appreciating the benefits derived from green rating of buildings. Recently, the rise in electricity and other operating costs have eroded investment returns, and as a result it is something that investors are tackling through the adoption of appropriate technologies. Investors are also seeing the merits of “Green Buildings” in the marketing of buildings. It has not become uncommon for large “Blue Chip” tenants to sign “green Leases” which require the property owner to perform according to certain green benchmarks. As property investments tend to be long-term in nature, it is of importance that investors understand the parameters that may influence the medium to long-term performance of these markets. It means paying attention to the unraveling of social, technological ( including public transport ), economic, environmental and political trends. RESOURCES Viruly Consulting For answers from the Prof email your questions to [email protected] 46 November 2013 SA Real Estate Investor www.reimag.co.za