Western Cape Business News

Send  Share  RSS  Twitter  14 Nov 2008

PROPERTY: Buyers, Sellers Get Closer


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A correction, that might not have come as soon as it did without the major financial upheavals further afield, has brought buyers and sellers in the commercial and industrial property market closer to consensus on value, says Cape Town broker Jonty de la Porte.

“It’s an ill wind, and all that, and the global stock market volatility has had the positive side effect of making our market somewhat less combative for willing buyers and sellers,” he says.

Commercial and industrial property owners looking to sell their investments were very aware that with the economy taking a knock, demand both in the buying and leasing sector would necessarily decrease. “Right now, more properties are coming up for sale, but it is also not what could be called a buyer’s market at this stage, because of existing supply constraints, and many sellers still being prepared to hold rather than sell low. Top end rentals will also come under pressure as demand drops and current projects are completed. But supply is likely to decrease as developments are held back. And this, added to relatively low inventory levels, will probably not result in marked falls in rentals,” he says.

In summary, De la Porte says once again value in the current market can be viewed as what someone is prepared to pay, not what the seller thinks it’s worth. While there seems to be a return to a balance between asking rentals and achievable rentals, and asking prices for properties that are starting to look viable for investors, a sharp drop in prices or rentals in the near future is unlikely because of an undersupply of space and a shortage of good, modern properties. A slowing down in new developments will mean that supply will remain relatively tight for the foreseeable future. For investors, this is a good time to buy at what is probably the top of the interest rate cycle.

He advises buyers to stick to the old fundamentals and look for value. “There must be a direct correlation between the rental that a property can achieve and the yield that the investment offers. The days of buying property with little concern for the yield in the belief that capital growth will make the investment worthwhile, are over. Both sellers and buyers should be aware of this fact.”

South African investors for the most part have something to be grateful for in the two government fiscal measures that have drawn criticism in their time - our exchange controls and the National Credit Act. “Both have, ironically, shielded South Africans somewhat from the worst of the global fallout. And for the future, it can’t be a bad idea to hold or invest directly in commercial and industrial property and be in direct control of your investment and your future. And the best way to do that is through property ownership or investments via a listed property vehicle. Both are currently showing excellent value,” de la Porte says.

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