Redefine boss shoots down rosy predictions for property market

South African property watchers’ predictions of significantly improved conditions this year are by and large unrealistic, according to Mike Flax, executive director of JSE-listed Redefine Properties. SA, he said yesterday, was following the rest of the world out of recession, but the property cycle traditionally lagged behind for a year . He said the first year in which conditions started improving could often be as difficult for the property sector as the recession. The reason was that it took time for the secondary effects of the recession to make themselves felt.

“Although there are now clear signs that the South African economy has at last turned the corner, tenants will, in the recovery period, still suffer from the job losses and expenditure cutbacks which the recession made essential.”

In the retail sector, vacancies in both malls and on the high street tended to be as serious in the initial upturn as in the downturn phases, he said.

And banks often waited until the market improved before moving in to pull the plug on defaulting debtors, their thinking being that, as conditions improve, so do the chances of selling off assets at a better price. “We have certainly not yet seen the last of tenant failures in our portfolio.”

What does this scenario hold for a group like Redefine, with a portfolio of 3,6-million square metres, , the bulk divided into 45% office, 43% retail and 12% industrial? Flax said Redefine would have to put — and was already putting — considerable effort and resources into marketing vacant space, which it planned to reduce this year from 8% to less than 5% by the end of this year.

Flax had previously said Redefine’s aim was to increase the average value of its holdings from R40m to R100m. This would involve not only selling off the less expensive stock but also purchasing newer, higher-quality stock.

An overall improvement in the property market would probably not be seen until late this year.

It would, he predicted, be led by the residential sector, which was the first to succumb to, and the worst affected by, the downturn. This would be particularly necessary in the office and retail sectors, which countrywide now had rising vacancies.

He said industrial space still had relatively low vacancies — in the Redefine portfolio below 5% — and with the economy improving, demand was likely to increase.

Redefine, Flax predicted, would in the year ahead be able to raise its distributions by 15% to 20%, as stakeholders would feel the benefits of the recent merger with Madison and Apex-Hi.
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