SA Property Market Not So Bad in Comparison

Slowdown Global Phenomenon

An international article published by Business 24/7 indicates that international real estate transactions have dipped by 46%, a figure influenced by the global credit crunch and economic uncertainty.

Investment in Asia and other emerging markets continues to grow, as major commercial property sales internationally totaled $154 billion in the first quarter of 2008, as compared to $283 billion at the same time last year, according to a New York based Real Capital Analytics report.

Property sales figures for the last couple of months reflect a weakening in Asia and an increasingly severe drop in sales in the United States and Europe. The United Kingdom appears to be leading the price declines, with the US following close on its heels. Since September 2007, the initial yield on acquisitions of commercial property has risen by more than 25 basis points in the Americas and by nearly 40 basis points in Europe.

Investment in land and development rights in Asia has topped almost $29 billion so far this year, making it the most popular choice for investors. Office properties in Europe come in second with just under $20 billion invested, followed by the Americas with $15 billion in transactions through April 2008.

Close to $56 billion of major commercial property transactions were completed in Europe, Africa and the Middle East during the first quarter of 2008. However, a significant turn of events saw Europe surpass North America as the most active marketplace for property sales. This should all be taken with a pinch of salt though, considering that this status was achieved while suffering a 40% drop in sales as compared to the 70% drop experienced in North America. The victory may also be shortlived, as property sales in Asia continue to grow and are not far behind.

Europe
Nearly all property types and most countries in Europe have seen a sharp decline in transactions this year and this has been more severe where larger deals are concerned. The number of deals in the first quarter year-on-year of more than $1 billion has decreased from 13 to just 5, while portfolio activity has dipped to 63% and entry-level deals have been cut by 89%.

Despite the slowdown this year, Britain still retains its status with the largest volume in Europe, even though this decreased overall by 61%. Germany, Sweden, Belgium and Denmark have all recorded bigger declines in property than Britain, while France, Russia and Poland have all fared a little better with sales down by 40% compared to a year ago.

Asia
The Asian sector includes Australia and New Zealand, which recorded positive trends in the first quarter, but this is beginning to lose some momentum. Sales of major commercial properties in Asia came to $48.3 billion in the first quarter of 2008, which is a 27% increase year-on-year. The gains seem to mask a gradual slowing in activity that has since become evident.

Global market factors are certainly having an impact on the slowdown, but the new regulations on land deals implemented by China are also partly responsible, according to the report. Auctions of major land plots in China totaled more than $10 billion per month, but has since dropped to just $3 billion. Despite this recent decline in sales, the total volume in China is still up 70%, equaling $21 billion. Sales in Hong Kong were somewhat flat in the first quarter, but a strong April has brought an increase of 21% year-on-year.

To the contrary, the sales volume in Australia and New Zealand has severely decreased by 47% and 24% respectively. Both countries performed badly in almost all sectors, as a number of listed property companies struggled to combat high levels of debt that resulted from a binge on property in the US, the UK and Japan in 2007. The total volume in Singapore declined by 36%, mainly due to an 85% volume drop in the apartment sector, as investors anticipate further weakening in housing.

Developed countries have experienced a fall of 25% in property transactions this year, while sales in emerging markets are up by a healthy 68%. Emerging countries were responsible for $102 billion in global property sales, representing 45% of total volume in Asia.

Americas
For the first time in the last five quarters, the volume in the western hemisphere has not topped $130 billion, recording only $50 billion in significant commercial property transactions in North and South America. However, performance over the last nine months is largely due to the credit crunch fallout. Some sectors in the US are down by as much as 80% in volume year-on-year, with all sectors suffering across the board.

The US remains the single largest national property market, although the deal flow is down by nearly 70% year-on-year. Canada is experiencing a similar situation, with volume declining by more than 70% over the same period. Needless to say, prices have not dropped nearly as much as volume has, with buyers and sellers engaged in a battle of wills over who will back down first on prices. The gap may be as wide as 15%.

The outlook seems to be brighter further south, with Brazil, Mexico and other developing countries starting to realize some of their potential. Mexico has a total volume up by more than 400% in the first quarter. South America has shown significant increases, with total volume quadrupling and land acquisitions leading the way. Argentina and Chile have also exceeded their total volume for the year compared to 2007.

Suffice it to say that while South African consumers are certainly feeling the pinch when it comes to interest rates and inflation, this economic slowdown is a global phenomenon and in fact, it is the developed countries that seem to record the worst hits. Emerging markets continue to grow, albeit more slowly, but there is still light at the end of the tunnel, so to speak.

The information in this article is courtesy of Parag Deulgaonkar (“International real estate transactions dip 46%”, Business 24/7, 23 July 2008).

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