De Klerk: Property remains a long-term investment game

The real estate sector in South Africa has faced significant challenges over the past five years, with the big five SA REITs losing over a hundred billion rand in value. Estienne de Klerk, the SA REIT Association Chairman and CEO of Growthpoint Properties SA, sheds light on the sector's journey and future prospects. In a recent interview with CNBC Africa, de Klerk highlighted the impact of COVID-19 on the sector, describing it as the 'ham in the sandwich' between banks, municipalities, and tenants. The pandemic caused REITs to write off an income of three to five billion rand within a few months. However, despite the challenges, de Klerk remains optimistic about the sector's recovery. In fact, he mentioned that REITs were the best performing sector for investors last year, indicating a positive shift. The rental market is improving, demand is firming up, and various sectors like office, retail, industrial, and niche areas such as healthcare and student accommodation are showing resilience. The industrial sector, in particular, is benefiting from the increased import and distribution needs across Sub-Saharan Africa. However, the higher interest rates continue to have a negative impact on the sector, with their effects expected to linger for the next year or two. De Klerk advises investors to adopt a patient, long-term approach and highlights the sector's potential for good value. The SA REIT Association's 10th-anniversary conference provided a platform to discuss these challenges and opportunities. The conference featured CEOs reflecting on macroeconomic factors, economists discussing global trends, and calls for collaboration to enhance municipal services and governance. De Klerk emphasized the need for public-private partnerships to address the decline in city management and the resulting capital flight to better-managed regions. Looking ahead, de Klerk expects the property sector to improve as demand strengthens, vacancies decrease, and inflation benefits existing real estate assets. He foresees rental growth and a potential decline in interest rates, which could positively impact REIT income statements. Despite the current uncertainties, de Klerk remains hopeful about the sector's long-term prospects and calls for more certainty and support from municipalities and government to foster investment and competitiveness in South Africa's real estate market.