Commercial Property in the Doldrums
According to the CEO of JSE-listed Growthpoint Properties, South Africa is not likely to see any “meaningful” commercial development during the next 12-18 months, due to the economic slump. He went on to say that he doubted that the ailing property market had bottomed out yet and that further deterioration could be on the cards, and added that even when the market begins to improve, the recovery will be slower than expected. In addition, Sasse said that the number of vacancies had increased, debt and funding are a major challenge, and building costs remain exceptionally high, making the outlook extremely gloomy.
Tight monetary policy, the global recession, high inflation figures, and declining consumer and business confidence have all contributed to the gloom and doom, and despite there being more available space in the commercial property market, there are less potential tenants. As a result, we are not likely to see many new commercial developments before the end of 2010.
Although Sasse empathised with those that had been hit hard by the tight lending policies of the banks, he said banks were also being pressurised to maintain sufficient capital and liquidity. He added that even though the prime lending rate has decreased, bank margins are higher. Whereas most people got prime minus two, in the past, today they are being charged prime plus two. In real terms this means that the cost of debt is higher.
Adapted from an Article on eprop.co.za, by Thabang Mokopanele, Property Correspondent, Business Day