Property Market Saved by World Cup IOL Property July 2010

"The 2010 World Cup has helped South Africa weather the worst recession in 80 years". These were the words of Grinrod Bank's chief investment officer, Ian Anderson, when he addressed a large group of investors attending a Investor Breakfast Club meeting in Umhlanga recently.

Unfortunately, the real estate markets were at the heart of the recession and as such have a fairly bad reputation at the moment. Anderson noted that on an international basis banks were very generous in their lending and had lent to people that probably shouldn't have obtained loans in the first place. The result: when things got tough, a substantial number of foreclosures took place in the US, Europe and the UK. He said that in South Africa banks had been faced with a completely different set of circumstances. "We are not in the same predicament as the rest of the world."

According to Anderson, South African banks had been a lot more circumspect in their lending practices. This was mainly due to restrictions imposed by the IMF and the World Bank. "Our banks performed well from 2003 to 2008."

In the last four years the South African construction industry has been focusing virtually exclusively on delivery for the World Cup, said Anderson, who believes that while there were developers who were itching to develop, they found that there simply wasn't a construction company available to build anything of any great significance. In addition, he said that construction costs rose significantly and while he wasn't sure of the exact figure, he believed these were around the 40% per annum mark, putting a further damper on any development actively. As a result of this, there was a strong balance between supply and demand, particularly in the commercial sector.

There hasn't been a significant decline in property prices and in his opinion, the South African property market was extremely well positioned at the moment, with interest rates expected to remain stable and no pressure on rentals, Although there are certain problems in the commercial sector, this is the exception rather that the rule.

The one area where there was significant over-capacity was hotels. He noted that a recent report predicted that 20% of South African hotels will fail within the next 18 months. The One and Only hotel in Cape Town will at no point during the World Cup be more than 40% occupied, and in fact will only have a 20% occupancy rate during most of the tournament. It is not just the high-end hotels that will be affected, he said. While the property market has remained balanced, hotels were the one area that hadn't.

Having weathered the recession, South African banks are now starting to become active in the lending market again. Now that the recession dust has settled banks appear to be approaching the lending market in a more aggressive fashion and once again competing amongst one another.

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