This year, I have decided not to attempt to determine where we are in the property market cycle as I have done previously, using the Property Clock. Internationally, with Trump and Brexit dominating the news and locally with our own social, political and economic issues, I think there are many more questions than answers.
What I can tell you is, there is still strong demand for all type of investment property in Cape Town, with industrial property being particularly sought after. Supply of industrial investment property is at an all time low. It is interesting to note that despite low growth, relatively high-interest rates and political uncertainty, investors are buying this type of property at very low yields (below 8% is not uncommon). What are the reasons for this? I believe the reasons are as follows:
- Cape Town has benefited from “semigration” more than most people realise. I am not sure that there are any reliable statistics to back up my claim but I am experiencing this first hand.
- investors have been accumulating cash and although yields are low, they can benefit from escalations, growth and gearing when investing directly in property They do not get this when keeping their money in the bank.
- The stock market is seen as being currently fully valued with an upside risk of correction
- Local industrial property owners are reluctant to sell if they do not need to, particularly as many have bonds at well below prime lending rates. One must add to this, the effects of capital gains tax and the fact that there are few attractive properties for reinvestment.
Industrial property vacancies are also currently very low with major industrial property Landlords such as Growthpoint and Equities having only a few properties available to rent in Cape Town. There has been very little speculative industrial development locally and this is helping existing industrial properties to achieve rental growth.
