Property returns good in 2013
Boitshepo Majube | Friday December 20, 2013 11:46
Big property companies have set eyes on the African market, where returns are good. Turnstar Holdings Limited is making it big in Tanzania while PrimeTime is targeting Zambia, as it expands into Africa.
The IPD reports that property investment has remained the only investment choice with significant inflation beating returns buoyed mostly by the retail and residential sectors, which recorded returns as high as 16.6 percent and 24.4 percent respectively in the year 2012.
Some in the property sector had remained cautious on property investment citing fears of vacancies that will be created by the new CBD.
“Tenants moving to the new CBD are not new in the market, rather they are leaving vacancies where they are coming from,” said Gulaam Abdoolah of Turnstar at their results presentation.
Industry players have also stated that migration of businesses to the new CBD from the Main Mall/Government Enclave and Kgale, was putting pressure on rentals as vacancies emerge. They also noted that older properties are likely to suffer in the short and medium term as tenants upgrade to new better developed properties.
Although total returns on property declined marginally to 17.9 percent from 20.9 percent in the previous year, other investment classes barely rewarded investors in 2012. With average inflation standing at 7.4 percent in the year, investors on the money market recorded negative real returns as the bond yield stood at 6.3 percent. On the other hand, the equities market barely beat inflation registering a 7.7 percent return in 2012. This means, on average, funds invested on the money market lost purchasing power while investors on the local stock exchange just about attained real returns.
According to the report, the industrial sector was the most profitable in 2012 with returns of 28.4 percent reflecting high demand for such properties in an economy that is pushing hard to prop up the private sector under the economic diversification drive.
The residential sector was the second most profitable with a yield of 24.4 percent up from 20.6 percent in 2011.
Reflecting the massive investments in the retail and office space in the past three years, the IPD index shows that returns from the two sectors slowed down last year as the sprouting of new malls and office accommodation in the new CBD and Fairgrounds nearly saturated the market. Returns on the retail space declined from 20.1 percent to 16.6 percent last year, largely on the back of tenants’ ability to negotiate for better rates due to the massive supply mostly in the Gaborone area.
The past two years has seen new supply from Airport Junction, Sebele, Game City expansion and Rail Park mall coming on stream. In the year, returns on office space also declined from 18.2 percent to 15.2 percent as the aggressive and speculative construction boom in the CBD and Fairgrounds Park in the past two years knocked down rentals by as much as 50 percent from peaks of 2010, particularly in the secondary markets such as Gaborone Main Mall, Government Enclave and Finance Park. According to a 2012 Knight Frank report, landlords in the secondary markets have cut asking rents in order to secure tenants and offered flexible lease terms rather than see their properties sit empty, as the market appeared deluged by new supply. The IPD Botswana Property Performance Report is based on a sample of 103 individual properties with a total value of nearly P3 billion. The figures represent the combined holdings of six leading Botswana property investment portfolios.