Friday, March 22

Political factors are drivers

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Property prices expected to be buoyant if clear election victory for ANC draws foreign investment

As South Africa emerges from last year’s recession, two schools of thought are expected to drive the commercial property market this year and, as expected in an election year, political considerations are prominent.

The first school is betting on a positive election outcome, said Galetti corporate real estate chief executive, John Jack. A clear ANC victory is expected to enable President Cyril Ramaphosa to navigate a tricky policy environment and attract foreign investment to South Africa, which is expected to buoy property prices by late 2019.

“These investors are taking advantage of softer property prices to add to their portfolios in the run-up to the election.” A coalition government, however, could see a significant loss in property value as the threat of an uncoordinated expropriation without compensation policy becomes more likely, Jack said. 

“However, if Ramaphosa sees good support for the ruling party it could attract investment and property values could rise on the prospect of better growth.” 

The second school, he explains, is driven predominantly by fears that any potential post-electoral property boom is unlikely to overcome concerns around rising interest rates and increased property vacancies, which are driven by a low economic growth environment.

“These investors expect commercial property yields to continue to soften well into 2019, and are using the pre-election period to lock in some of the incredible gains achieved in the past decade, particularly in the direct investment commercial property category, by selling down their respective portfolios. 

“We have seen yields softening over the last 18 months and believe this reflects certain sellers willing to accept less and hedge their investments elsewhere, be in it other sectors or offshore. This means that, for those looking to buy, there are bargains to be had.”

It also means that properties are likely to spend longer on the market. Despite these opposing outlooks for this year, Jack said the upcoming election is unlikely to put the commercial and industrial investment market into a freeze.

“Instead, I believe the election will generate additional churn – with the fluidity of transactions possibly exceeding any other year.”

Galetti’s national portfolio sales and investment team have noticed “a definite pick up” in the number of transactions, as these opposing schools of thought follow their respective investment strategies up to the election.

“Our democracy is entering its 25th year and the real estate investment market has proved to be an asset class which has produced results year-on-year.” Whatever the election outcome, this promises to be an action-packed year for the commercial real estate industry, he believes.

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