S.Africa's inflationary pressures aid property sector - CNBC Africa

S.Africa's inflationary pressures aid property sector

Southern Africa

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“The fundamental issue is that we are in a higher inflationary environment and because South Africans are used to trading in very volatile economic markets, generally the tenant and the landlord or the developer agree a fixed escalation in terms of their rental agreement,” de Klerk, the executive director at Growthpoint Properties, told CNBC Africa on Tuesday.

“If you look at the fundamentals, our vacancy factors are reasonably low across the board. I think because the rental levels and the cost of land is generally lower than the international market, we’ve had a lower base and off that, we’ve seen good growth.”

South Africa's Listed Property Index fell 11 per cent in May but ended June 4.4 per cent up and the sector has benefited from declining bond yields and a stronger rand as well.

De Klerk indicated that another contributing factor to this could be the monetary difference between measuring per foot and per meter. 

“South African rentals are generally very low per square meter comparable to the international market where quite often they work in square foot. You’ll find the rentals even higher in square foot than they are per square meter here,” said de Klerk.

According to Stats South Africa, the total turnover of all industries for the first quarter of 2013 was estimated at 1.62 trillion rand, of which the real estate and other business services sector (excluding financial intermediation and insurance) contributed 9.9 per cent.

“It’s ideal for pension funds, its ideal for investors looking for a fixed yield and it is very predictable. The South African sector is quite unique in that a huge component, probably 95 to 99 per cent, of the actual profit these entities earn is actually from rental,” de Klerk explained.

“I think where the other complexity comes in is that a lot of investors like to stick in a rand and pull out a rand, in between there’s not all that much of a dividend flow – here you do get capital growth but you’re getting a very high dividend yield generally throughout the period.”

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