south african property brings higher returns than developed markets
News Posted On: 21 April 2010
Despite taking a hit from the international recession, returns from commercial property in South Africa were still far higher than that of the US and UK. According to the real estate performance index by IPD/Sapoa, South Africa's property market delivered a total return of 8.7%. This is compared to a 3.5% return from UK property, and a contraction of 17.5% in the US. The index is based on a sample of 1833 properties with a capital value of R162.9bn at the end of December 2009.
Stan Garrun, MD of IPD SA, said at the annual IPD index launch in Johannesburg that the local property market's fundamentals were solid, a factor that it helped it maintain net income growth.
"[There was] resilient rental growth and occupancy levels have been maintained," he said.
The property market can thank its lucky stars that South African banks were relatively hardy against the global financial crisis, said Mohamed Kalla, a property analyst at Barnard Jacobs Mellet.
"SA's credit markets were more sheltered by the global banking crisis when compared with other countries," he said "this, coupled with more prudent gearing levels meant that property funds were not forced to sell assets at rock bottom prices to avoid loan-to-value breaches." A loan-to-value breach is when funds borrowed exceed the value of the secured asset.
Kalla said onerous supply constraints and strong building inflation in the years leading up to the financial crisis underpinned rental growth in the sector.
South African property has attracted increasing attention in recent years. The recession hit the market harder than was expected, but as this index shows, it didn't hit it as hard as more recently feared. This resilience will likely bring further interest in investments in South African property.
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