Durban 231111Standard Bank Breakfast 231111, Raquel CiprianoPic Terry Haywood
Suren Naidoo
WHILE the local property sector was performing comparatively better than other parts of the world and the long-term prospects were good, it has still been affected by the lingering effects of the global economic situation and was facing ever increasing operating and development costs.
Those were the general sentiments expressed at the last Standard Bank Sector Focus Breakfast for the year, which put the spotlight on the local property industry and was hosted in association with The Mercury.
The discussion, moderated by KwaZulu-Natal development economist Professor Jeff McCarthy, was attended by some of the leading property developers and professionals in the province.
McCarthy said the South African economy was not as badly affected by the global economic downturn when compared to several other parts of the world.
“I’ve seen property values drop significantly in major developed economies compared to the peak a few years back. Some countries like Spain have seen a doubling of unemployment. Comparatively, things are not as bad in SA… However, post the World Cup we’ve now seen the construction sector, which is closely linked to property, slowing down. Construction is one of the main sectors in the economy, which employs many people,” he said.
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“On the other hand, we’ve seen other countries in Africa performing better. Mauritius is just an island, but it seems to be doing very well in terms of property development with dozens of resorts compared to KZN. In Dar Es Salaam, I’ve seen more than 40 glass high-rise buildings currently going up… And, Tanzania as a country has a smaller economy than KwaZulu-Natal,” McCarthy said.
He asked what were the local conditions in KZN and if there was light on the horizon.
Wessel Witthuhn, of IFA Hotels and Resorts, which owns the Fairmont Zimbali Hotel resort, said on the leisure side it was still “doom and gloom” globally. He said it would take two to three years before the market started to really pick up.
“Places like Mauritius and Tanzania are special cases… In Tanzania and other African countries like Mozambique, there is a shortage of offices and other commercial properties. That is why there is so much development happening.”
McCarthy said in Durban development was moving northwards to uMhlanga Ridge and further in Ballito, which would be spurred by the development of King Shaka International Airport and Dube TradePort.
“While there seems to be an oversupply of offices in the market, uMhlanga Ridge is still in a sweet spot when you see the amount of development happening.”
Durban 231111Standard Bank Breakfast 231111, Thiru Govender Pic Terry Haywood
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Andrew Thompson of eLan Developments, said the North Coast property market was bucking the trend. He said in eLan’s Simbithi Eco Estate development they had achieved 258 property transfers between January and April this year. This was compared to about 98 in the same period last year.
“While the overall property market in SA and KZN is slower than the peak of years back, one of the best news stories is the development north of Durban and up the North Coast. Despite current market conditions in KZN, over the long term we are very optimistic,” he said.
“One also has to remember that over the past decade we’ve seen the development of Gateway and uMhlanga Ridge, Sibaya Casino, Suncoast Casino, the first phase of the Durban Point Waterfront, including uShaka Marine World, the Durban harbour widening, and the opening of King Shaka International Airport.
“Over the longer term there are a lot more exciting things to expect… We could see Gateway alone double in size with increasing bulk,” Thompson said.
Miles Taylor of Standard Bank in KZN, said property development seemed to happen far more systematically in the province compared to Gauteng.
“Property development in KZN seems to come in with demand and with a lot more interrogation and questions around sustainability… If you look at Pretoria, for example, there are five shopping centres in one area.”
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Taylor said the National Credit Act (NCA) had clearly had an impact on the residential property market, when sales “fell off a cliff”.
“We have not seen a lot of new growth of residential property developments… In terms of industrial property, the sector is bucking the trend due to a shortage of industrial land in Durban. In addition, the port is a huge engine for the Durban economy and there will always be demand there. In the rest of the commercial property sector, there are areas with positive growth, but also gloom,” he said.
Neels Brink of Laurusco Developments, concurred, saying besides the NCA, consumers and property developers were absorbing a range of rising costs from rates and electricity to fuel and the prospect of new development charges.
“In the property market there are selective hot spots such as uMhlanga Ridge, Riverhorse Valley and near the Durban port,” he said.
McCarthy questioned if demand around the port and Riverhorse Valley was from manufacturing or warehousing. Taylor conceded that it was largely for warehousing rather than for manufacturing.
McCarthy said if one took a 50-year view, it was conceivable that a new metropolis could emerge north of Durban around the new airport and Ballito. He said provincial government and municipalities would clearly need to plan better to accommodate for this growth in the north.
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Andrew Layman, CEO of the Durban Chamber of Commerce and Industry, said new development nodes in the city such as uMhlanga Ridge and around Hillcrest, were “stretching the eThekwini Municipality”.
However, he said the city’s planned new property development charge was not the way to go. He urged the city to work with the property industry to find a “more workable solution” to the problem of financing new infrastructure costs.
Taylor said the development charge was yet another cost for the property industry to face.
He said building costs could increase by between 20 and 30 percent, which would be ultimately passed on to the end user.
“If it goes through it’s going to have a huge impact on new developments and will push development out of the city to places like Ballito… But, in the future this development charge may not just be in eThekwini. With the national Treasury supporting this, all municipalities could do it. It’s just that eThekwini has been ultra aggressive in leading this.”
Meanwhile, Thiru Govender, CEO of Melki Group, said that despite there being a clear demand for industrial property, access to financing was still a huge issue.
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He said banks in KZN were more conservative than Gauteng in providing financing for property development.
Property developer Rob McInerney said Durban’s west was an area to watch in terms of property development and investment. Logistics, warehousing and manufacturing facilities were set to grow along the Durban side of the N3 to Pietermaritzburg with the N3 corridor’s development.
McCarthy said that, besides the plan for the new development charge in Durban, government bureaucracy in terms of approving projects, rezoning land and Environmental Impact Assessment bottlenecks were curtailing greater development and investment.
