The future of property

2013-03-31 10:00

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What will drive the next boom? Maya Fisher-French examines the newly launched Sapoa/IPD Africa index

Property returns grew by 15.2% last year, the highest return from property since prerecession levels, according to the Sapoa/IPD Africa Annual Property Index, which was launched this week.

While on a macro level this figure is impressive – especially compared with global returns, which remain largely negative – the main driver of returns came from retail property and specifically large shopping malls.

While mega shopping malls showed strong growth this year, property economist Francois Viruly, a professor at the University of Cape Town, argues that this trend is likely to change as we enter a new period of development and densification.

Viruly says historically we experience a property boom every 20 years, which means the next property boom should start in the early 2020s.

“Current figures on the property market suggest we are on the upward phase of a property market. It may take a while, but it is increasing,” says Viruly, who makes the point that while we experience a property boom every 20 years, each peak is higher than the previous one.

“We are seeing the continuous urbanisation of South Africa and in every upward cycle we have a bigger shortage of real estate.”

It is this urbanisation and the densification of our CBDs that Viruly believes will drive the next property boom. In the 1980s the property boom was driven by the motorcar, which led to the creation of large suburbs.

This not only destroyed value in the CBDs, but gave rise to the mammoth shopping mall culture. This era is coming to an end and with continued traffic congestion, along with more people moving into cities, Viruly says property demand will be around major transport nodes leading to higher densification.

Although South Africa’s population is fairly stable at 50?million, it is where people will choose to live that will drive the property market. Predictions are that there will be another 10?million people living in Gauteng by 2030 and that Johannesburg will be as big as Lagos.

“We are seeing the first signs of interest in the CBD again. Densification of our cities will once again offer opportunities in the CDB,” says Viruly.

There is also opportunity for large residential listed investments.

Viruly says globally pension funds are large investors in residential property developments, but this is not the case in South Africa, where currently the JSE is dominated by commercial property listings such as retail, office and industrial space.

South Africa’s current method of providing stand-alone houses in the gap property market far from business nodes does not provide opportunities for investment, but a move to high-density flats in central business districts will create opportunity for investment.

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