New SA property boom coming?

Presenter: Lindsay Williams  Guest(s): John Loos 

FNB property economist John Loos might be suggesting that another property boom may be coming - along with the 2010 World Cup

LINDSAY WILLIAMS: John, the 2010 World Cup and the property market - we’ve got to look forward four years, and we’ve got to start planning of course. Are there going to be positive knock-on effects for the property market?

JOHN LOOS: Yes, I think so. I think people going out to buy a bed and breakfast to make a quick buck for a month or so might be disappointed - but I think what the World Cup does is firstly boost leisure property because it’s going to boost tourism over the next few years. Then I think what it’s also going to do is create a little bit of a material supply crunch, and possibly exert some inflationary pressures on building costs, and that will drive up prices all over the commercial property sector I think - so there are some positives in terms of property prices.

LINDSAY WILLIAMS: If you look at the most visible evidence of 2010 it’s going to be some super stadiums - I’ve seen plans of some of them, and they’re really quite spectacular. What about the knock-on effect for property around the stadiums?

JOHN LOOS: Yes, especially in derelict areas. I think of the area around Ellis Park - the stadium itself doesn’t make much difference to Ellis Park, but I expect quite a lot of infrastructure upgrading of the surrounding areas. We’re running into shortages of infrastructure such as roads for instance - if you’re upgrading the surrounding areas, I think that creates a better environment for both commercial and residential property upgrades. So I think those neglected areas - and Ellis Park is the one that springs to mind - will receive quite a boost from this.

LINDSAY WILLIAMS: You don’t it will just be a once-off - a great deal of optimism up to the event, the event itself - and then everyone goes home and we’re left holding the baby?

JOHN LOOS: I think what needs to happen with all those fancy stadiums we’re going to build - we need to find a use for them moving forward. It’s the same as the Sandton Convention Centre - it couldn’t just rely on the Earth Summit, there has to be ongoing use for these things. There are a lot of potential uses - so just as Louis Luyt came in and turned Ellis Park around from a loss-making stadium into a profitable one years ago, good management and marketing, and ongoing use afterwards is very important.

LINDSAY WILLIAMS: Retailers is one sector that immediately springs to mind - do you think that property sector is going to be one of the major beneficiaries?

JOHN LOOS: There will be a mini-boom around World Cup time - one thinks of the tourism spend, and retail and entertainment - and obviously a lot merchandise being sold all over the place - probably a lot of pirate stuff as well I would guess - but I would expect a mini-retail boom over that period as well.

LINDSAY WILLIAMS: By the time we get to 2010 the property sector of the JSE is going to be bigger - we’ve seen lots and lots of funds coming to the market over the last year or so, and some niche funds with exposure to the hotel, hospitality and tourism industry - should we be looking at those sort of funds?

JOHN LOOS: I think so, yes. There’s been a bit of decompression of yields - so the listed property sector in general is a bit probably more inviting than a few months ago. There are probably going to be periods in the run-up to the World Cup where it gets a bit overpriced - but I think yes because of my bullishness in commercial property in general, and I think we’re in a period where we generally tend to under-forecast things - I think that listed property will perform very well along with the rest of the directly held commercial property sector.

LINDSAY WILLIAMS: Let’s look at the property market in more general terms now - the Business Day said that the South African listed property index recorded a negative total return of minus 19% for the quarter ending June 2006 on the back of a price slump in listed property stocks. Do you think that’s going to continue, or should we be looking at this as a buying opportunity?

JOHN LOOS: No. I think we should be looking at it as a buying opportunity - I think we just have to look at the fundamentals that underpin listed property. The listed property sector - unlike directly held property - is subject to the volatility of the JSE that’s often caused by commodities and all sorts of other sectors, but if we look at the underlying fundamentals economic growth is still steaming along very nicely. It accelerated in the first quarter. I think with this short-term period of rand weakness you could even see more acceleration in economic growth. There are low vacancy rates in industrial property, very low vacancy rates in office property, and there’s strong rentals inflation - I don’t think one could hope for and we haven’t seen such a good situation in commercial property in years. So I would say no, it’s definitely a buying opportunity - and I think for the next four years the supply crunch is going to continue because we’re expecting economic growth to carry on at 4% to 5% per year, and there’s all sorts of constraints in the building sector. It’s a good time, and I think it’s going to continue to be a very good time up until the end of the decade at least