Blog by Rode

Rentals in decentralized office nodes are still under-performing in real terms, according to the office rental survey figures for the last quarter of 2004, featured in Rode’s Report 2005:1.

When the new Property Rates Act of 2004 comes into effect in a few months’ time, property valuers will be explicitly prohibited from considering the impact of existing leases on market value, unless those leases are registered at the deeds office.

Even though market rentals of non-residential properties are expected to show solid growth this year, it will be declining vacancies rather than rental growth that will drive the income streams of listed funds.

In spite of the current low inflation rate, leaseback escalation rates, as surveyed in Rode’s Report 2004:4, continue to be high at an average of 9,1%.

A recent study by property economists and valuers Rode & Associates has found that vacant land has grown faster than house prices over the past few years and seems set to continue to do so for some time to come.

With real industrial rentals flying and capitalization rates continuing to fall, the focus in the property market is likely to shift from residential to non-residential property, predicts property valuers and economists Rode & Associates in their latest Rode’s Report on the SA Property Market.

In the residential property market, estate agents and valuers have a serious problem in estimating the market value of a house, says Rode CEO Erwin Rode.

The oversupply of prime-quality office space in certain decentralized nodes will not last long, Rode predicted recently. Now, Sapoa’s September office vacancy figures suggest that above-normal vacancy figures are indeed slowly but surely being mopped up.

The big secret when buying an asset is to pay less than its fundamental value. When the general price level of an asset such as residential property increases above its fundamental value, it loses its attraction as an investment.

It’s a good time to buy non-residential property. Industrial space will probably come into short supply soon and real office market values are low relative to historic levels.

Adventurous investors and cyclical factors could account for the recent sharp decline in office capitalization (“cap”) rates in most of South Africa’s CBDs.

Here’s a reality check for home buyers relishing the huge increases in capital growth they’ve experienced over the last few years: if measured against inflation over the past 30 years, your investment has actually gone backwards.

The debate still rages is the property industry in a bubble or a boom? In last month’s edition of this publication, Rode warned that the overvalued residential property is poised on a knife’s edge.

South Africa’s middle-priced residential property boom is starting to lose momentum as buyers’ attention is by necessity diverted to lower-priced suburbs.

Retail property’s popularity continues to amaze. The expected increase in shopping centre space for 2004 is already at a healthy 198.000m² and growing.

Limited rental stock in two cities has been cited as one of the reasons why flat rentals have shown a remarkable recovery over the past year.

Office space take-up around the country has exploded, indicating that the worst is over for this property class.

Buy-to-let investors and houses in upmarket suburbs are most at risk should the South African economy be hit by an external shock that causes interest rates to be bumped up.

It seems as if the window of opportunity for listing directly-held, non-residential property is closing fast. The reason for this is that unlisted properties’ market rating relative to listed property could further improve in months to come, and this will take some of the attraction of listing away.

When it comes to non-residential property, industrials have not been the place to be, especially over the last decade.