Following the uncertainty prior to the elections, the second half of the year should be much more positive for the property sector, according to Norman Raad, CEO of Broll Auctions and Sales.
“With the election results behind us and change the order of the day, I believe that there is some positivity for investors and businesses to look forward to. It is an undisputed fact that sentiment plays a big role when investing in property. Certainly, we can expect more properties coming to the market due to the effects of the past two years of inflation and a difficult economy. However what may be different is that the last quarter’s attendances at our property auctions and participation to buy property will increase.”
Raad says smaller retail and residential property is pushing through and achieving low yields, invariably even below 10 percent. “The greater the number of investors and clients, the higher the price achieved. Having said that price is not the only factor taken into consideration – investors are looking for the right property as buying a property for a cheap price is proving to be liability in the short term. However, if you can hold on for at least a number of years or more you may see through the difficult cycle”.
“It is also evident that investing in property shares has proven to be more valuable, risk free and at a discount to the sellers’ asking prices. I believe that property owners have had a reality check when it comes to trying to sell marginal properties in the current market. Investors have far greater options with the amount of stock on the market, so investing directly into bricks and mortar needs to tick all the boxes, and even then securing the finance is proving to be a challenge”.
“Our last auction highlighted the fact that small convenience retail and residential is still high in demand with more than a dozen registered bidders for the Meadowdale (Johannesburg) strip retail and residential blocks which sold on auction. In the office rental market the likelihood to see any growth remains slight. Small and medium size industrial commercial and industrial business are also under pressure and as a result are looking for more cost-effective options when it comes to renting”.
“There’s a quote which says that your rear view mirror is always clearer than the windscreen and so we can use our experience to buy when the market is facing headwinds and right now, we are seeing a lot of properties come to the market which previously would never be on a sales list. Funding is and will always be a challenge, especially as banks become even more conservative in the face of uncertainty. Our country needs optimism and growth to stimulate the economy and foster employment, and we want to avoid the scenario where look back and regret we missed the opportunity to buy now.” He says property owners may use the current period to consolidate and clean up their portfolios or properties and look more internally than grow through expansion.
“Property will continue to stand the test of time as a sound investment. If you travel north across the borders you will find that generally properties have maintained their values even in the most volatile countries. They are almost all valued in dollars and are more expensive when you convert to our currency”.
“However, while the currency has shown some recovery, we are still far away from any real signs of growth, and improvement needs to be greater to have any material effect on the country, considering the recent challenging period.”
He says while some of the property real estate investment trusts (REITs) are offering good yields and value for investors, investing directly in property has shown that buyers are reluctant to pay for the lower yields seen in 2015. There has also been a trend for REITs to buy shares in other REITs as a risk free investment for their shareholders while good properties remain scarce and overpriced.
“Property yields have moved to 12 and 13 percent for the first time in years and that is a direct correlation and sign of the difficulty sellers are facing with so much stock for buyers to choose from and a choice for value in the investment market.”