SA Property Market in Better Shape than World

Property Prices Falling Worldwide

An article published in the UK’s Independent has drawn attention to the fact that the housing slump is spreading globally, with the adverse effects of the credit crunch on property values taking hold in Europe, the US and the rest of the world.

The current financial turmoil being experienced globally has send the demand for retail and industrial sites almost everywhere into decline, according the Royal Institution of Chartered Surveyors (RICS), which carried out the first global commercial property survey recently. The quantity of transactions has decreased in Eastern Europe and South America, while emerging Asian markets are experiencing stagnation in growth, including China. RICS warned that investors are reassessing their “appetite for risk” and this is having a profound effect on the global property market. Demand from commercial tenants has also decreased, but has not been so badly affected.

The chief economist at RICS, Oliver Gilmartin has said that, “Few markets have escaped the credit malaise which has engulfed commercial property activity since last summer. What started in the developed world has spilt into investment activity across several emerging markets”.

He added that, “In Britain, the outlook for the coming quarter remains subdued, with 23 percent more surveyors expecting rents to fall than rise”. The predictions were released yesterday when Shaftesbury became the latest British property company to report difficulties and blamed a drop in the value of its portfolio.

Shaftesbury owns shops and restaurants in and around London’s Carnaby Street and has reported a net loss of €91.2m for the last six months, its first loss since 1992. The group reported earnings of €212m during the same period just a year ago, with the net value of its assets having fallen by almost 11% this year.

Gilmartin explained that the demand for rental property had fallen worldwide for the first time in 4 years, with a significant drop in capital values in Japan and Australasia. Commercial offices in Japan are expecting the worst rentals, followed closely by retail outlets in North America. RICS has said that while China and other emerging Asian markets acted as a “beacon of resilience” during the last half of last year, “investors are now less sure of the potential higher returns on offer”.

This all translates into the most serious collapse in confidence ever experienced by Western nations. Over half the western European companies contacted by RICS indicated that industrial property prices were down, while the down spiral in the US residential market was likely to have an impact on the shops and malls sector.

Even so, RICS analysts found some parts of the world where commercial property was still flourishing. Values are expected to rise in many parts of Africa and the Middle East.

Taking this information into consideration, the current stagnation in the South African residential property market does not seem quite as bleak as the situation being experienced in the rest of the world. Commercial property is still booming and the steadily increasing interest rates are resulting in a strong rentals market. Perhaps the saying that every cloud has a silver lining rings true here.

The information in this article is courtesy of Sean O’Grady (“Credit crunch sends property prices falling worldwide”, The Independent, 29 May 2008).

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