Commercial Property in South Africa Yields Good Returns for 2008

The year 2008 saw many grief stricken property owners pulling out their hair in disbelief as the world markets came crashing down around them. The UK, USA, Europe and China were worst affected with inflation pushing many people’s income to stretch further than ever before, especially to cope with debt repayment and the loss of value of fixed assets.

South Africa did not escape unscathed and the population has definitely felt the sting of increasing food prices and inflation. Inflation grew to 11.5%, a major increase for a time frame as short as a year. The property market was reported as having ‘crashed’, leading to a major drop in property prices. Nominal returns on property values dropped far below the 27.5% which 2007 yielded and were the lowest recorded since 2002. Equities and property equities suffered a defeating -23.2% loss in 2008 whilst the JSE PLS Index returned -2.3% and the JSE PUT Index returned -9.7%.

These statistics may seem unsettling but South African property did perform somewhat in 2008, especially in comparison to other countries’ real estate markets. Despite the comparatively low yields on investments, the commercial property market has surprised many with far greater nominal returns than in other countries. Property developers and financial consultants warn that while the yields of 2008 are far less than 2007, the returns made have been satisfactory, especially considering the global financial crisis.

The Sapoa/IPD Property Index has revealed that investments in South Africa’s commercial property market produced a nominal return of 13%. This double digit figure is the highest in world commercial property for 2008. Despite the inflation rate taking this percentage to only a 1.3% increase from 13%, the return is a positive reflection of the greater financial stability of South Africa and especially its property markets when measured against other countries in Europe, Asia and the USA.

The UK and Ireland were heavily affected by the recession in 2008 with property values dropping due to yield rises across all sectors. The UK experienced nominal returns of -22.1% and Ireland -34.2%, a staggering loss in comparison with the 13% increase of South African commercial property. Continental Europe achieved varied returns from commercial property in 2008 whilst Asia suffered a staggering loss in comparison to last year’s returns. South Korea saw a drop from 26.7% in 2007 to 4.0% in 2008. North America achieved returns of 3.7% and Australia 1.3%.

Offices and industrial spaces achieved returns of 9%, whereas retail property made returns of 7.8% producing an average income return of 8.3% for all property. The cause of the positive returns has been linked to the pricing structure and financial markets in South Africa remaining somewhat stable. Even though the inflation rate of 11.5% has caused prices to soar, the effects were not felt nearly as heavily as in the UK, USA and Asia. Robust and capital income growth was positive throughout 2008 and whilst consumer confidence was a little threatened, commercial property investment was made to a far greater level than in other countries.

The positive returns on commercial property investments during 2008 in South Africa are a clear indicator that the property market in South Africa has a greater stability than elsewhere in the world. Despite the comparative drop to last year’s property returns, and the influence the recession has had on world property markets, South Africa’s commercial property marketing has emerged successfully. Buying commercial property at this time is a lucrative investment as prices are lower than average but the return is still positive and fixed assets are not depreciating in value.

The year 2008 saw many grief stricken property owners pulling out their hair in disbelief as the world markets came crashing down around them. The UK, USA, Europe and China were worst affected with inflation pushing many people’s income to stretch further than ever before, especially to cope with debt repayment and the loss of value of fixed assets.