Property fundamentals strong for 2010

Staff Writer | Friday January 22, 2010 00:00

While the local property market largely shrugged off the effects of the global recession last year, higher prices of construction materials meant a slowdown in the number of new residential and commercial developments. This, in turn, analysts said, helped continue the property supply/demand imbalance that has supported positive growth of the market for years.

Industry experts who spoke to Mmegi this week said fundamentals in the property market indicated another strong year for the sector, one of the few to receive a positive outlook in a year of uncertainty around the recession's status. The analysts said already, levels of purchase prices and rentals both for commercial and residential properties, were pointing north, strengthening the market.

Premier Property Managing Director, Luc Vandecasteele said all indications were that prevailing rates in the property market would rise. He said fundamentals in both the residential and commercial purchase and rental sectors, were stable and expected to strengthen as the year progressed.

'Due to the high cost of building in the last year, few people were prepared to undertake property developments because the rentals being offered were still low when compared to the investments required in these developments.

'The developers could not invest in projects, then accept low rentals which do not recoup the costs of the investment. As a result, the gap has continued between the rentals and the investments required for the construction of more properties,' he said.

As a result of this, Vandecasteele said demand for residential and commercial properties would continue outstripping supply, until such time that increased rentals supported the development of more properties. He said another factor that could affect the imbalance would be the rate of inflation.

'Inflation has also been a driver of high costs in property development and if we could tackle this, more properties would be developed and purchased and rental prices would also decline,' he said.

Vandecasteele said with the anticipated cooling off of the global recession, the supply/demand gap could be narrowed this year.  Local economist, Oscar Chiwira said while it was presently difficult to gauge the status of the recession in the local economy, the few indicators available positively supported the strength of the property market. Chiwira said the market was expected to respond positively to the country's slow move away from the recession.

'We are expecting the market to be stable in the first quarter and perhaps by the third and fourth quarter, yield stronger results as the economy moves out of the recession. However, we cannot be certain at this stage how strongly it will perform because there are few indicators of how significantly we are moving out of the recession. Overall, I'm expecting a positive trend in terms of returns from property this year,' he said.

Chiwira noted that property would remain the hedging instrument of choice for investors due to the positive long-term returns and proven fundamental strength.