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Property 24/10 - 214

17 July 2014

Office property vacancy rates in SA
The office property sector is currently seen as still being in slowdown phase because of increasing vacancies and slowing rental growth, according to the South African Property Owners Association (Sapoa) office vacancy results survey for the second quarter of 2014.

Economic drivers of the office sector
The South African macroeconomic environment continues to face several headwinds and some key catalysts of office sector expansion remain under pressure, according to the report.

Chief among these are the rate of economic growth and specifically that of financial and business services.

For the year ending March, real economic growth slowed to 1.6 percent y/y – largely as a result of the prolonged platinum sector strike.
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Commercial property costs impacted
Interest rate increases and escalating municipal costs, including electricity and water costs, maintenance services and municipal property rates, are resulting in commercial properties becoming very expensive to maintain, and in turn is lowering the demand for this type of property in South Africa.

This is according to Gary Palmer, chief executive officer of Paragon Lending Solutions, who says that five years ago municipal bills as a percentage of operating costs were around 40 percent.

“Today these costs have escalated to around 66 percent of operating costs with the impact continuing to put pressure on net property incomes, especially where landlords are unable to pass on cost increases to tenants.

“Increasing costs and the downward pressure on rentals has resulted in a margin squeeze in this sector,” he says.
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Sapoa CEO to lead global council
South African Property Owners Association (Sapoa) CEO, Neil Gopal, will chair the International Region Council (IRC) of the powerful, US-based Building Owners’ and Managers’ Association (BOMA) in 2014-15.

“It is a great honour to represent the SA commercial and industrial property industry on a global platform,” says Gopal. “Especially one as influential as BOMA.”

BOMA is a federation of almost 100 building owner and manager associations throughout the US plus 13 international affiliates.

Gopal was elected to the position last month during a global gathering of BOMA members at its Annual Conference in Orlando, Florida. He served as vice-chair of the BOMA IRC in 2013-14.
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SA estate agents better qualified
Anyone writing the history of the residential property sector in South Africa will find that a major change, perhaps the biggest ever, took place in the industry in the 2004 to 2014 era.

This is according to Wayne Albutt, Regional Sales Manager for the Rawson Property Group in the Western Cape, who says the big change of the last decade, has been in the calibre and qualifications of South Africa’s estate agents. In all South African estate agencies it is now recognised that this type of work can no longer be seen as part-time or as a fill-in. It requires complete commitment.

Albutt says a decade ago, it was unusual for people with MBAs, BComs, business, property management and other tertiary qualifications to sign on as estate agents. Now, especially in the larger and more successful groups, it is happening all the time.
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To fix home loan interest rate or not?
For many homeowners already hard-pressed to manage the rising costs of living, the prospect of another interest rate hike is not a pleasant thought, and some may be wondering whether now is a good time to fix their home loan interest rate, while it is still low.

Most people only think about fixing their rate when interest rates start rising which is not always when they will get the best deals, says John Loos, Household and Property Sector Strategist at FNB Home Loans.

On Thursday the Reserve Bank’s (SARB) Monetary Policy Committee (MPC) will announce whether there will be a further interest rate hike at this stage. After the last surprise rate hike, some economists have recently speculated that there might only be one more increase this year in November of 0.25%, but according to the latest FNB Property Barometer a hike of 0.25% in the repo rate is expected tomorrow, taking it to 5.75%.
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Speculating with residential property
There are many people, or investors, in the property market who strive to make money by flipping a property, or buying and selling properties within a short space of time.

This can be very rewarding – but it comes with a high level of risk – especially in the office property market. This is according to Org Geldenhuys, managing director of property development and management company, Abacus Divisions. “Lots of people buy property in the hope that it will increase, enabling them to flip the property by selling it in the short term – and, in so doing, make a healthy profit. But this is speculation, which can obviously be risky.”

Buying and then quickly selling a property at a higher price is only viable if you are astute enough to buy the property at a price that is below the market value, or if the market is buoyant and prices are in an upward spiral.
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Proposed Rental Housing Amendment Bill
The proposed Rental Housing Amendment Bill has significant improvements to assist landlords and tenants.

Penny Cheery, partner in the Real Estate team at Hogan Lovell’s, explains that among the various amendments the noteworthy changes are:

1. Leases are to be put in writing. The onus will be on the landlord to do so.

2. The addition of certain rights and obligations for both tenants and landlords.
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