A look at SA’s massive property sector value

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13-07-2016
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Moneyweb
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The residential sector is the largest, according to research by the Property Sector Charter Council.

The value of South Africa’s property sector has swelled in the past four years to R5.8 trillion from R4.9 trillion, as developers continue to pour billions into property investments.

The valuation of the property sector is according to research by the Property Sector Charter Council launched on Tuesday – determining the size of the country’s property sector.

The council’s CEO Portia Tau-Sekati says it’s important to have an understanding of the sector given its sheer scale and contribution to the economy.

Although the latest research doesn’t give an indication of the contribution of the property sector to the country’s gross domestic product, the council’s previous research pegs the contribution to R191.4 billion in 2012. This figure refers to the annual income and expenditure flows generated by the sector.

Despite the domestic economy growing at a glacial pace and a rising interest rate cycle in full swing, which makes funding costs for developments expensive – the country’s property sector still grew by nearly R1 trillion.

The council’s research is based on contributions and figures from property analytics companies such as Lightstone and MSCI’s Investment Property Databank, the South African Property Owners Association, various government departments and others. The research is updated every two years by the Property Sector Charter Council.

The formal residential sector (properties registered at the Deeds Office) is still the largest property sector, accounting for more than half of the total property sector value. The sector grew from an estimated R3 trillion to R3.9 trillion, with 6.1 million registered residential properties in the country.

For the first time, the research considered the informal residential property market (properties not formally registered). Although the market has no value, it was quantified by the number of households provided by the Department of Human Settlements.

“The formal residential sector is easier to gauge, as there are a lot of parties in this market that gather the information on this market. This is not the same for the informal residential sector,” Tau-Sekati explains.

Commercial properties made up the second largest sector, carrying a value of about R1.3 trillion, up from R780 billion. Most commercial properties, comprising of shopping malls, office properties, distribution centres and hotel properties that are valued at a combined R789 billion, are held by corporates. And the balance is held by real estate investment trusts, unlisted property funds, and life and pension funds.

In the commercial sector, shopping malls have the highest value at R534 billion followed by office properties at R357 billion, industrial properties at R281 billion, and hotels and other properties accounted for R94 billion.

South Africa in recent years has seen a throng of new malls opening their doors due to the strong appetite for retail therapy among consumers and the aggressive store rollout by retailers.

Already the retail market is widely viewed as over-shopped if recent figures by property research company Urban Studies are anything to go by. According to Urban Studies, South Africa has more than 2 000 shopping centres covering 23 million square metres — comparable to 163 Sandton City malls.

Tau-Sekati says the value of the country’s retail sector might increase, as recently completed shopping malls and those yet to be completed are yet to be accounted for.

Undeveloped urban land zoned for development remained unchanged at around R520 billion. The public sector contributed a total of R237 billion, largely held by the Department of Public Works, state-owned enterprises, and metros and selected local municipalities.