One year since lockdown started, on 26 March 2021, the South African Institute of Valuers (SAIV) hosted an informative webinar to address market queries about how Covid-19 has impacted the property industry, what adjustments are required, and how new challenges can be addressed. Hosted by SAIV president, Tracey Myers, the webinar featured two high profile speakers to shed light on the issues impacting the industry.
Photo by SAIV
Eileen Andrew, the vice-president of MSCI, presented real estate trends for 2021. MSCI is a globally listed company that provides investors with information to help them make better decisions through various analytics tools, indexes, research, and real estate tools.
Andrew showed how returns from real estate have fallen world-wide due to the pandemic, as tenants failed to pay rent, vacated their units, and went into debt. Despite valuations decreasing, the market has not been able to keep up. Other key trends she presented were:
- Amplified polarisation as the divergence between sectors and property types continues to increase. The spread within property types has widened.
- Pricing is seeing an interesting trend, as investors are extra careful about valuations and methodologies. The question is whether there has been an over or under correction in values. There appears to be a lack of information and transactional evidence creates obscurity.
- Climate risk remains an issue, with the need to integrate climate analysis into the investment process. This is challenging as it is often non-financial in nature and difficult to quantify.
Focusing on South Africa, Andrew showed projections into 2023 where the industry will continue to face ‘demand shock’ off the back of the pandemic as people refrain from purchasing property. “We will likely see property prices fall a bit more from December 2021, although it all depends on how this year plays out.” On the topic of office rental, she commended landlords for being softer on renters during lockdown, although office vacancies have increased since 2019.
All these trends have brought into question the true value of a property asset, and valuation methodologies. MSCI recommends three elements to look at when valuing property today. Andrews said: “We can adjust for the short-term impact of Covid-19 causing loss of income owing to rent deferrals or holidays. We can look at longer-term income impact owing to decreased net income because of rent reversions, oversupply of stock resulting in longer void periods, tenant affordability, increasing operating costs. Lastly, we can also adjust the risk premium to account for factors such as location, property type, structural redundancy, quality, and tenant covenants, because all these factors impact the risk premium.”
Nobenguni Bogopa, MD for Broll Property Management was next on the lineup, discussing the rental market in detail since the start of lockdown in March last year. “When the 21 days of lockdown was announced, I don’t think any of us were prepared for a year of lockdown. It shocked the system and meant we had to start adjusting with speed,” said Bogopa. Citing the impact on rentals she said, “We saw a huge amount of retail and office renters not necessarily cancelling their contracts but citing the force majeure clause and explaining how they were unable to keep up with payments.” She said there may have been more cancellations if people had known how long lockdown was going to last. “There was a concerted effort by landlords to keep tenants at all costs, with discounts, rent reversions and payment holidays. Much of this is still ongoing.” Bogopa also said landlords were generous in that many continued to pay managing agents, despite not being able to collect full returns from tenants. This was a huge help to the wider industry.
The financial implications of following government regulations were also cited as a further challenge that had to be catered for, where tenants had the added burden of investing in systems, PPE, and personnel to ensure adherence to regulations.
Finally, as the pandemic drags on and people continue to adjust, Bogopa said rental cancellations are now trickling in. “It didn’t happen at the front-end of the pandemic, but it is starting to set in, and it is definitely a trend to watch, where people are saying they need to be released early from their rental agreements.”
The webinar left little doubt that the industry landscape will continue to change. However, industry bodies such as the SAIV will continue to assist the industry to navigate the turbulence, aiding the longevity of the sector and the businesses it sustains.
