Real estate has been hit hard over the past eighteen months and it has been a challenging time for all South African property owners. As the economy started showing signs of recovery towards late last year, South Africa took second and third blows in the form of the third wave of Covid-19 and the civil unrest which has tallied an approximate R50 billion impact on national GDP.
Taking place at a time of unprecedented and volatile events, the recent SAPOA MSCI 2021 Conference provided an analysis of where South Africa is headed as it faces its worst economic performance since WW2. It also identified possible shoots for economic recovery while reiterating the importance of the property sector as both a key player in the economy and in job creation.
“South Africans are resilient, and this conference gives the property industry an opportunity to address what needs to be done at a policy level for our country to continue to weather the storm. Inequality is unsustainable and it breeds instability. We need to ensure inclusive growth through the real estate and investment sectors” commented Malose Kekana, Group CEO of Pareto Limited and Chairman of Tri-Star Construction, sponsors of this year’s conference.
While the two-day virtual event covered a broad range of topics including key real estate trends and the impact of Covid-19 on local and international commercial property markets, a few reoccurring themes uncovered the stark reality of South Africa’s unemployment crisis, wavering business confidence, political negligence and disruption, and the exorbitant increases in property rates and taxes – all ‘courageous conversations’ that were brought to the surface.
Recent data released by StatsSA suggests South Africa is facing a record 34.4% unemployment rate with 33% of the youth looking for work – a ticking time bomb and an unsustainable position we find ourselves in.
In his keynote, ‘Tipping Point or Turning Point’, Political and Economic Analyst and Futurist, Daniel Silke highlighted the crucial role that the built environment plays in job creation and economic growth and how the property sector, an important shareholder in ‘SA Inc.’, has leverage in putting its case forward to government while holding those accountable.
Slow recovery is underway amid the delayed Covid-19 vaccination roll out anticipated to make a meaningful achievement by 2022 but short-term conditions do not look good for South Africa with analysts forecasting an imminent economic contraction. Government is also out of all its financial options and by increasing taxes, it is placing further burden on already strained South African households.
Nicky Weimer, Group Chief Economist for Nedbank, believes that government will not be a source of growth to the economy unless it fixes its finances and gets rid of corruption and irregular expenditure.
According to Mike Holland, Economist and Director of PriceMetrics Ltd. who conducted extensive research on behalf of SAPOA, South Africa’s major municipalities increased property rates revenue at much faster rates than CPI inflation between 2010 and 2019, particularly placing a heavy burden on commercial and industrial property owners.
He went on to state that if property taxes are introduced and administered as an important element of government’s taxation policy, these could be the most efficient of all taxes in terms of economic incentives and growth – both at a micro and macro level.
But, as in South Africa’s case, where property taxes are excessive with the potential to reach levels where they become counterproductive, it not only shows a lack of investment in the property sector, but existing problems could get much worse and the real price that property owners pay for is this increased burden.
Nedbank predicts that South Africa will witness 2.4% in GPD growth for 2021 and 2% for 2022. While there is a light at the end of the tunnel for recovery, the property industry needs to remain optimistically cautious with a clear vision and both the public and private sectors sitting around the same table.
“Even though 2021 has been particularly challenging across the board and we recognise that a turnaround for any real impact to be tangible may take at least five years, we anticipate a recovery” commented Andrew Konig, SAPOA President and CEO of Redefine Properties.
“Without the support of our board and our members during the pandemic and the subsequent civil unrest and looting, our sector would not have been able to discuss and to navigate the challenges that we face”.