According to the Investment Property Databank (IPD) South Africa looks set to be the best-performing country again in 2005 with a record all-property return of just over 30%. With IPD SA managing director Stan Garrum
LINDSAY WILLIAMS: IPD is now in its eleventh year of reporting on the South African commercial property market - at the end of 2005 the databank included over 2,279 investments, with a total value of R98-billion. Stan, I bet things have changed in those eleven years?
STAN GARRUM: Absolutely. We�ve seen property returns of some 8% on average in the early years, up to this sort of level over the last two years.
LINDSAY WILLIAMS: We�ve had a bit of debate in the last few days in the studio about the potential over-valuation of the equity market, and the potential overheating of the SA economy in the future. What about the SA property market - are you getting a sense that maybe it�s also coming to the end of its run?
STAN GARRUM: I think to a large extent the residential market has displayed those characteristics, but I think we�re still in for quite a lot of growth in the commercial property market.
LINDSAY WILLIAMS: If you split up the commercial property market - which particular areas are going to do best in your opinion?
STAN GARRUM: At this stage the star performer last year was in fact industrial property - which slightly out-performed retail. Retail and industrial both returned over 30%, the laggard was offices. I think there�s quite a potential turn-around in the office sector where we should see quite a good performance coming through.
LINDSAY WILLIAMS: So we should maybe look at listed property companies on the JSE that are overweight offices - is that what you�re saying?
STAN GARRUM: I think that the office sector certainly has the fundamentals - vacancy rates for example have really dropped very sharply, and I think those returns are coming through - in fact offices performed at above 25% which in itself is not a bad return.
LINDSAY WILLIAMS: Looking at the numbers - you talk about a record all-property return of 30.1%. Can you put this into context - what country was number two, number three, and after that worldwide?
STAN GARRUM: Number two at this stage is Ireland - all the returns for the various countries aren�t in yet, but the Irish property industry returned about 24%, and if I�m not mistaken the next one is the UK�
LINDSAY WILLIAMS: I see Canada came in at something like 18.7%, and the UK with a total return of 19.1%.
STAN GARRUM: Yes, that�s it.
LINDSAY WILLIAMS: The Netherlands only came in with 10.2%.
STAN GARRUM: 10.2% yes.
LINDSAY WILLIAMS: When you release these sorts of figures do you get international investors saying: �Tell us a bit more about South Africa - we want a chunk of this action�?
STAN GARRUM: Yes, I think that�s beginning to come through. For various reasons the international investors - especially the large fund investors - have been out of South Africa in a sense because of various reasons. I think there�s certainly an awakening to South Africa as a high-return country - even though perceptions of risk are there, you can�t ignore returns of 25% to 30% - 25% in real terms, 30% in nominal terms.
LINDSAY WILLIAMS: What stage of the cycle are we at now? Some people would say our glass is half full, some say half empty, others are saying at 30.1% that we�re going to start to have a down-turn in the property market - do you share that, or do you think we�ve got longer legs?
STAN GARRUM: I think we�ve got long legs - at this stage 30% is quite a return, to continually perform at that sort of level, so I wouldn�t be surprised if it eased off a little - but I�m not expecting returns to go back to 12% or 10% even though it might level off mainly due to capacity-type constraints, and so on that might impact on it. But I think ultimately the fundamentals are very strong - the economy is doing well - so I think there�s quite a lot of fundamental strength in these markets going forward.
