Property market - commentary

Posted On Wednesday, 02 November 2005 02:00 Published by eProp Commercial Property News
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Property gets a general "hold" recommendation - rather than a "buy" or "sell" recommendation - from senior Absa treasury economist Chris Hart

Chris HartLINDSAY WILLIAMS: It’s nice to have somebody in the studio who doesn’t have a vested interest in the property market - apart from his massive personal portfolio of course - and that’s Chris Hart from Absa. Chris, what’s happening internationally on the property markets? Things have been slowing down - the UK seems to have stabilised a bit, the US bubble seems to be inflating even more and people seem to be getting more and more nervous as Australia falls quite sharply... Do these markets have an influence on both our residential and commercial property market?

CHRIS HART: It could have an effect, but I think any effect is fairly minimal. The main driver of the South African property market would be internal dynamics - we’ve seen that in the 1980s, in the 1990s, and now as well. It’s the strength of the economy that’s the primary driver, also confidence in the whole system - which is effectively why we had the political discount in the property market I suppose from the 1970s, and 1980s, and 1990s. That’s disappeared - property prices have been re-rating because of the improvement of confidence in South Africa…

LINDSAY WILLIAMS: So confidence is still bowling along quite nicely? The Purchasing Managers Index (PMI) came out earlier today - it’s around the 55 level showing that the manufacturing economy is doing well, and that’s a proxy for the rest of the economy as well I suppose therefore the commercial property sector is also doing well…

CHRIS HART: Yes, I believe so. What we’ve had is a consumption boom in this country - I think as the previous speaker was suggesting that is starting to ease off in terms of growth. I still believe that there will be reasonable growth in that sector, but behind that consumption boom an investment boom is going to be coming, and quite strong investment to take advantage of the high levels of demand that are being achieved even if it’s slower growth, but certainly growth off that very high base that we’ve achieved.

LINDSAY WILLIAMS: Investors in the JSE listed property sector should be listening very closely to this - we have seen the retail boom that’s starting to level off, but that does not mean to say that the commercial property sector is going to level off because there are three pillars (retail, commercial and industrial) so should we be switching out of retail looking at funds that perhaps have exposure elsewhere?

CHRIS HART: In the commercial side, and industrial possibly a little bit later - there is a lot of infrastructure spending coming through, the financial sector is still growing very strongly and is likely to continue to grow strongly. For that reason, if those sectors are strong, the properties those businesses operate in will also do well. It just stands to reason. While retail property and residential property probably led the boom over the past few years - you may find the commercial property sector picking up.

LINDSAY WILLIAMS: Of those two - office space, or industrial space? I hear people saying: "There’s an acute shortage of really prime industrial land and property"?

CHRIS HART: At this stage the manufacturing sector did have a bit of a lull - and that probably lagged - but with the whole region growing, and demand for manufactured goods starting to rise I think you will see industrial land improve quite a bit, also commercial property.

LINDSAY WILLIAMS: Looking at geographical areas - I’m not just talking here about Durban, Cape Town, Johannesburg, Bloemfontein - what about particular areas within those geographical areas? Should we be looking at where the Gautrain, for example, might actually if ever get built one day - should we be looking at nodes around certain areas there?

CHRIS HART: Absolutely. It’s definitely the strength of the economy - so you will find Rustenburg doing very well because the economy centred around platinum is doing very well, and so the property market obviously follows suit. These special case situations are situated around the country - and one needs to take cognisance of that. Where you’ve got industries that are struggling - like the gold mining industry in the Free State - you will find property lagging the rest of the country, because the specific economy in those areas is not as robust as the rest of South Africa.

LINDSAY WILLIAMS: The government’s policy on the sale of state land has been in the news the last couple of days - a moratorium on the sale of state land - will that have any effect in the future on the property market?

CHRIS HART: I think there is massive demand for property, and it comes with the transformation of the economy - we’re basically transforming from a 5-million people economy to a 47-million people economy, and any withdrawal of supply to that demand is going to have an upward effect on prices. It might not be a massive effect, but it still would have a supporting effect.

LINDSAY WILLIAMS: Psychologically, and macro-economically it all comes down to interest rates - there is a lot of talk about the December meeting of the SA Reserve Bank. Historically nothing really ever happened in December? It’s a bad time to make any sort of move - unless there’s an extraordinary circumstance that demands it - so let’s say nothing happens in December, but the next interest rate move? I looked at the PMI today - the "prices paid" index is not going up too much, maybe the next interest rate move is going to be down?

CHRIS HART: I think one needs to appreciate that the global economy is turning down, and that could well have a ricochet effect in our own economy. Whereas I do believe that SA will continue to grow at least at or above the global average, things are not going to be quite as buoyant in the first and second quarters of next year - February 2006 through to June or so - and if they don’t hike in December there is a good argument to suggest that the likelihood of a hike recedes dramatically after that.

LINDSAY WILLIAMS: People invested in the JSE in the listed property sector - should they be looking back at the last couple of years saying: "The growth has been tremendous - given what the experts are saying we should be taking a little bit of money off the table"? Or do you think there’s more legs in this market, maybe a little more selectively?

CHRIS HART: I think it’s almost a case of the "buy" recommendation is off the table - the "hold" recommendation is there. In other words enjoy the ride, but it’s not really the time to put on big new positions.

LINDSAY WILLIAMS: Unless you can find a fund that is specifically geared to the sector that you like, maybe industrial?

CHRIS HART: This is very generic advice - not specific researched advice from that point of view - so obviously any special situation has different decision criteria. But just as a generic decision-making thing the recommendation would be more in the "hold" area, certainly not "sell" at this stage. It’s a case of enjoy the ride!

Publisher: Business Day
Source: Business Day

Last modified on Monday, 05 May 2014 09:58

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