PROPERTY: Real Crunch Will Come In 2012
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Last year was tough for real estate and, after three years of trudging through a severe downturn, the year did not present a path to recovery. As buyer-demand cooled, concerns about global sovereign debt heightened and weak prospects for the local economy worried investors. “From an auction perspective, we saw a distinct cool off in demand from the third quarter. In an industry, well versed in cheery talk about prospects, no-one can claim that the property market has endured anything other than a bruising 2011,” says Auction Alliance CEO, Rael Levitt. Despite this, Auction Alliance concluded the year with an excess of R6 billion worth of sales.
“It is most likely that, during 2012, we will see further house price lethargy and contraction. The luxury and leisure residential markets remain the most beleaguered, with entry-level housing being the bright spot on a murky horizon.” says Levitt.
In 2011, the greatest challenge for the auction industry was attracting buyers who have been over supplied with non-income producing and distressed properties. “Throughout the year, economic headwinds were strong and low interest rates did little to boost sentiment after a five year debt binge.” Levitt says that 2011 was also a “game changer” for the auction sector with the implementation of the Consumer Protection Act, however, the full effect of these regulations is still to be implemented.
Levitt reflects that he was correct when he said, in January, that the commercial property market would become two-tiered: prized properties would experience a surge in demand whilst lower-end properties would have less appeal.
The volume of vacant office stock continued to rise during 2011, but began to tail off as few new developments commenced. Office block sales were strong in the first two quarters, compared to 2010, but there was a stabilisation in enquiries by the end of the year. Retail property transactions remained robust throughout the year and yields for prime properties reached 8%; although there was a decrease in demand for smaller retail units and strip malls as more vacant stock coming onto the auction block - this was prominent outside Gauteng.
While there was a small increase in the number of enquiries for industrial property, occupier and investor sentiment now seems to have steadied. Development land continues to be the weakest performing part of the market, and the downward trend, seen since 2010, will continue. Auction Alliance sold over R350 million worth of failed developments in 2011 despite feeble demand. “With deep discounts now being offered for land, we may see land banking grow in this year.” We expected far greater numbers of hotels and guest houses hitting auction floors, but our outlook for this market remains precarious.
“My outlook for 2012 is disquieting. Quite how bad will depend on a myriad of global and local issues, but there is no doubt that 2012 will be filled with challenges and tribulation,” concludes Levitt.
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