Blog by Rode

In spite of a rosy forecast for economic growth of 4 to 5 percent for South Africa over the next five years, house-price growth is unlikely to even beat consumer inflation, says Erwin Rode of property economists and valuers Rode & Associates.

Listed funds are generally reporting that properties at appropriate yields are hard to come by these days. That is especially true as far as retail property is concerned.

After many years of underperforming, office rentals are set to soar sky high as both demand and supply side factors are exerting upward pressure, predicts the Rode team.

Rode & Associates property valuers recommend that commercial and industrial property investors conclude gross leases because it simplifies budgeting exercises and administration, and improves tenant relations.

If we weren’t so emotional about our homes, the best financial decision for us to make at a time like now when real house prices are near or at the top of the property cycle, is to sell and rent, and to buy again when house prices are on the decline.

The non-residential property market continued to gain momentum during the first quarter of 2005, while house prices, although losing further steam, were still growing at remarkable rates.

On a recent visit to South Africa, international expert on poverty alleviation Hernando de Soto made headlines with his comment that the “absence of legal title in Africa has stunted development”.

Like a stone thrown into a pond, prosperity ripples out spatially from the areas where the strongest economic growth is happening.

Robust growth in industrial-stand values in Cape Town, Central Witwatersrand, Port Elizabeth, and Durban over the past year has considerably outpaced rental-growth rates, notes Rode & Associates in the latest Rode’s Report (2005:2) on the state of the property market in South Africa.

It seems logical to conclude that the more unaffordable houses become, the more rentals will increase. Surely with house prices having increased so much faster than salaries, fewer people are buying their own homes and therefore more people are renting.

Since the pension fund of Boots, the UK equivalent of Clicks, moved its assets entirely into bonds, reports have been surfacing of an international trend among pension fund managers of abandoning active fund management in favour of a safety-first approach.

The Reserve Bank’s ½% point interest rate cut will bring little respite for prospective homeowners, as it is unlikely to make houses more affordable in the light of booming prices — at most it may prolong the boom by, perhaps, six months.

Listed funds with property portfolios that are heavy in office property could be disappointed by the short-term effect that the anticipated “boom” might have on their income streams.

The fact that many listed property firms are currently trading at a premium relative to their net asset values (NAVs) has recently been cited as evidence that professional property valuers are too conservative in their valuations.

If you are planning on buying an investment property with the hope of making windfall capital gains when the 2010 Soccer World Cup sweeps South Africa, think again.

While industrial stand values in Central Witwatersrand and the Cape Peninsula grew by an inflation-adjusted 2,5% and 6,7% during 2004, industrial stands in Port Elizabeth and Durban did not perform that well in real terms.

New urbanism in the form of self-contained villages in metropolitan suburbia offering a mix of residential, retail and office space, schools, and both indoor and outdoor recreational activities, is fast becoming a trend in South Africa.

The hot housing markets in several countries worldwide are showing signs of cooling off for the first time since 2002, according to The Economist’s global house-price indices.

Industrial property has turned out to be the star performer on the property front last year.

Outstanding returns on listed property in South Africa over the past number of years have boosted demand for listed property as an asset class.