But sentiment and business confidence could improve, experts say after #SONA19.
President Cyril Ramaphosa’s State of the Nation Address (Sona) might have contained the right keywords when talking about economic growth and infrastructure development, but it is not enough to curb the rising vacancy rates in the commercial property market.
Commercial property players are waiting for the results of the general election in May for a clearer picture of the market’s path this year, but in the meantime, last week’s Sona has given them something to work with.
And so far, there is nothing really to get excited about, says FNB property economist John Loos.
At best, there could be an uptick in general sentiment and business confidence, he says, but nothing to celebrate. In fact, vacancy rates across all sectors of commercial property will probably continue to increase this year.
“We finally have a president who understands the importance of the economy and how it must be a priority, so we could maybe find an uptick in business confidence and sentiment following the address.
“But nothing he said really changes anything. We are still in a stagnant economic environment with growth of only 1.4%.”
And this growth rate – even combined with a possible pick up in sentiment – is not enough to reverse the trend of vacancy rates in the office, retail and industrial property sectors, Loos says. A reversal will possibly only be seen when economic growth hits about 2.5% to 3%.
At the end of the day, both residential and commercial property is still seeing real value declining, he says, adding that while the president did make “all the right noises” in his speech, which could boost sentiment, there were no policy changes that would lead one to expect any meaningful improvement to the country’s situation.
One would also need to see whether the positive points made by Ramaphosa come to fruition or merely remain words.
For those who believe Sona will translate into action, the president’s comments in on infrastructure development and commitment to “getting the country’s economy working again” is a welcome focus. After all, as Erwin Rode of Rode and Associates states, real estate development and the sustainability of property is dependent on proper infrastructure, hence Ramaphosa’s emphasis on improving South Africa’s infrastructure is “encouraging”.
“At the same time, the tone of his speech is bound to improve confidence, which is likely to help the development and investment mood slightly.”
FWJK chief executive Dave William-Jones recently highlighted that developers need to be working in the affordable housing market this year to assist with the provision of housing, as demand here remains the highest, and so, for developers the statement that the Housing Development Agency will be tasked to build an extra 500000 houses over the next five years should be good news.
Of course, the issue of cost is still one that needs to be solved.
Rode does caution that this amounts to only 100000 houses, a year, a figure he calls a “drop in the ocean”, but acknowledges that the fiscus “simply cannot afford” to expend more on “give-away” houses.
“Thus, it is to be welcomed that the People’s Housing Programme will be ‘expanded’. The PHP is essentially a site-and-service programme, meaning the family gets a serviced erf on which it can erect its house.”
Psychologically, he says this is a superior model to giving away free houses in front of TV cameras and it’s more affordable to the fiscus.
“The question though, is what is meant with ‘expanding’ the programme,” Rode says.
Ramaphosa’s assurance that infrastructure development and economic growth would be key focus areas was also welcomed by Greeff Christie’s International Real Estate chief executive Mike Greeff.
“Economic stability will have a positive effect on foreign perception of South Africa and could, in time, lead to a change in credit rating. The development of infrastructure is an excellent way to encourage foreign companies to prove to the world that we have first-world capability.”