Listed property is set to lose a fifth of its R600bn in asset value in the next two years, the CEO of SA's largest real estate group said on Monday, as the country drags itself through a slow, painful recovery from the Covid-19 pandemic and economic recession
Growthpoint CEO Norbert Sasse said in a conference call with investors that many South Africans' livelihoods which were already under stress, had been battered by the lockdown and this would reverberate around all sectors of real estate.
"Thousands of people have lost their jobs and consumers will be much much poorer coming out of the pandemic. I expect many tenants which sell higher-end goods as well as restaurants to take real pain because South Africans from all wealth levels have been affected," he said.
Growthpoint, which has exposure to assets worth about R140bn spread across SA including half of the V&A Waterfront, Australia, Poland, Romania and the UK, was expected to see its property valuations fall between 10% and 15% over the next two years, he said.
"I don't think things are going to return to normal for a long time. Corporates are retrenching and closing businesses. If anything, we'll probably start to see some recovery only at the end of 2021," he said.
Growthpoint’s management expected GDP to shrink by between 7% and 10% in 2020 and to recover, at most, by 3% next year.
Companies that owned the better-rated properties could see value writedowns of up to 15% in the next two years. Others could see their assets lose 20% or more in value.
This means that the 20 largest SA listed property companies that make up the Sapy index, which have combined assets worth about R600bn, could lose about a fifth of that value.
Sasse said the drop in valuations would mostly because of how much income the properties could generate.
Keillen Ndlovu, head of listed property funds at Stanlib said the Sapy was trading at a discount to its net asset value of more than 45%.
"This means that the market is not comfortable with the current physical property values. Before Covid-19, we were forecasting capital values to fall by as much as 10% on average, given weak growth and an oversupply of retail and offices. The pandemic has made this even worse and the fact that the sector is trading at such a hefty discount shows this is now priced in," he said.
Meanwhile, Estienne de Klerk, who heads up Growthpoint's domestic business and is also the spokesperson for the sector's crisis association, the Property Industry Group (PI Group), said landlords had done their best nationwide to help struggling tenants, through rental discounts or deferments since Covid-19 threw the country into turmoil in March.
Tenants were now starting to ask for smaller rental space, he said.
"The conversation has shifted from being about rental relief to being about renting less space. While we haven't had any of our large anchor tenants wanting to downsize, medium and smaller ones are discussing this. This is happening sector wide," he said.
The PI Group includes representatives from the SA Property Owners Association (Sapoa), the SA Council of Shopping Centres and the SA Real Estate Invesmtent Trust (Reit) Association.
It released a relief package worth more than R2bn in April which was extended to help smaller retailers more when the lockdown was extended past three weeks.
De Klerk said a very difficult time for commercial property was being made far worse by rising municipal rates and taxes which rose every year at levels beyond inflation.
"We can't use rental increases as a buffer anymore while municipalities raise their charges at double digit rates," he said.
Growthpoint and other landlords have now asked Sapoa to address the Department of Cooperative Governance about the exceptional increases which were even harder to manage amid a pandemic, he said.
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