Francois Viruly, a property economist and professor at the University of Cape Town, believes that investors will soon have the luxury of being able to choose the sector-specific listings that appeal to them the most.
“What is probably more interesting at the moment is the type of listings that we’re going to. I think if we look ahead, for the first time in South Africa, we will start seeing listings that are very focused on particular sectors,” Viruly told ABN Digital.
“I think that in the not too distant future we will see a fund that is focused on private storage. These may well not be the general funds that we’re used to but it will allow investors to hone in on specific sectors of the commercial property market.”
Seventeen property companies have listed on the JSE in the last three years. This, among other things, has led some to believe that a property bubble could be on the horizon for South Africa.
“There’s some great properties that can enter the listed South African property market. I think many of our biggest shopping centres are not even in those funds at the moment so I’m not too concerned about it. I think there’s a good take up of the script, the funds should perform well,” Viruly explained.
“If you look at the property scenario, especially the commercial properties, it of course comes down to the quality of the funds. I think that there’s always a risk as you start getting too many listings, when the market starts heating up, that the quality starts falling.”
Viruly indicated that the residential property market specifically, is much more sensitive to interest rates and moves a lot faster with the shift of interest rates.
“The one issue that we normally see is an uptake in the residential property market. What we really want to see first is a residential market that starts moving and behind that we will see the commercial property market. That is exactly what we saw in 2001 and 2002,” he said.
“Where are we in the cycle? In both cases, I’m taking a view that we’re probably two to three years away from a major boom but again, you’ve got to differentiate the construction boom from the investment boom. The only place where I think there is concern in the South African commercial property market at the moment is the office market.”
He added that there are two specific issues that South Africa needed to look at in the property space going forward.
“The first has to do with operating costs. I think we’re still seeing enormous increases of the electricity price increasing through the property market, the rates and taxes, all of those issues are playing an important role,” Viruly emphasised.
“The other important point to bear in mind is that if we go back to 2001, 2002 - when we started to really see a property boom occurring in South Africa - it was on the back of a relatively strong macroeconomic scenario. My argument would be that for things to kick up in this market, you would need three or four quarters of GDP growth hitting the three and a half per cent and beyond.”