Brakes on real estate rentals applied more firmly now – Rode latest. While property's public relations machine may have started talking about green shoots appearing, the facts reveal that the brakes - in terms of the growth in market rentals - are being applied more firmly now, Rode & Associates has said. It based this view on data contained in the latest Rode's Report on the SA Property Market.

On the office front, said Rode.co.za on Thursday, even while some CBD nodes are still recording fairly good growth in market rentals, the underlying trend seems to be one of deceleration, with growth in certain decentralized nodes (among them Johannesburg, Cape Town and Durban) having cooled to single digits. "The only exception to this rule, according to the Report, appears to be Pretoria, where decentralized market rentals were, on average, still up by an impressive 15%."

Rode's comments confirm what some others in the industry have already been saying. Earlier this week Realestateweb quoted David Green, managing director of the Pace Property Group noting that commercial landlords, particularly of B and C grade properties, were under pressure. He said  office landlords will have to do more to retain and attract tenants, with lower rentals and increased tenant installation allowances are among the measures up for consideration.

And, an international survey released by RICS this week has found that distressed commercial property sales are picking up fast in South Africa.

More than 80% of 25 countries surveyed saw a rise in distressed sales in their commercial property markets in the third quarter of 2009, with the biggest pick up reported in South Africa, followed by the US, Portugal and then France, said the property professionals' body.

RICS defines a distressed property as one that is "under a foreclosure order or is advertised for sale by its mortgagee" and it says that distressed property usually fetches a price that is below its market value. More opportunities are set to open up for international real estate bargain-hunters as banks take advantage of improved pricing and loan refinancing to offload some of their own property loan exposures, is the RICS prediction.

Earlier this week, auction company boss Rael Levitt of the Alliance Group revealed that some of South Africa's big listed property funds were amid a big sell-off.

Turning to the industrial market, meanwhile, Rode & Associates said that in the second quarter of 2009, the Central Witwatersrand (+9%) recorded the best growth, while in the Cape Peninsula (+4%), Port Elizabeth (0%) and Durban (-1%) the impact of poor demand conditions on rental growth has become more evident.

"The flat-rental market is clearly also trending sideways, showing dull growth especially when compared to consumer inflation. With the best performance during the second quarter coming from Durban at approximately 7% over the past year, compared with consumer prices that have grown by roughly 8% over the same period, it is obvious that real flat rental growth has contracted across the board in all metropolises."

Looking at the residential market, Rode said house prices have dropped by 3% on August a year ago. "There is, however, a glimmer of hope on the horizon as the latest report reveals that, on a month-on-month basis, house prices have been up by 0,2%, translating into an annualized rate of about +2,3%."

But, said property economist Erwin Rode: "While prices remain as high as they have been, and disposable income continues to fall, the house market will continue to feel the pressure in real terms for a number of years still to come.' Rode points to the "inevitability of a rise in income tax and electricity tariffs".

Other points made by Rode include that:

    * In the second quarter of 2009, capitalization rates - the property equivalent of the forward earnings yield of shares - continued to move sideways on both retail and industrial properties, as well as for office buildings in the decentralized nodes of Pretoria and Durban."
    * Only in prime office nodes, in decentralised Johannesburg and Cape Town, has some strengthening been noted. "An exception to the overall picture has been revealed in certain CBD office nodes where cap rates have moved north, revealing that prime nodes will always fare better than secondary nodes during times of economic stress".

Judged against the performance of other sectors, it is no surprise, therefore, that the building industry has remained in the doldrums in the second quarter of 2009. "In the residential building sector, real gross fixed capital formation contracted by a hefty 8%, faring only slightly better in the non-residential building arena where it decelerated to 7% - its lowest yearly growth rate in almost four years. ‘In turn, both the Haylett Index (which measures building-input costs) and the BER BCI (which measures both building-input costs and contractors' profit margins) are decelerating at an alarming pace,' said Rode.

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