Erwin Rode on Prospects for Property (Cape Town presentation)
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Moneyweb Seminar Moneyweb Seminar Radisson Waterfront Radisson Waterfront 6 October 2011 6 October 2011 Erwin Rode Erwin Rode www.rode.co.za www.rode.co.za
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Transcript of Erwin Rode on Prospects for Property (Cape Town presentation)
Moneyweb SeminarMoneyweb SeminarRadisson WaterfrontRadisson Waterfront
6 October 20116 October 2011
Erwin RodeErwin Rodewww.rode.co.zawww.rode.co.za
World prospects
1. Financial crisis has resumed
2. And: USA and European growth prospects must be poor for many years — think 10 years
Medium-term prospects for SA economy
1. Lower growth in the wake of low world growth and infrastructure constraint in SA
2. But, China factor
3. Taxes and tariffs set to rise to catch up
with backlogs
4. Thus, disposable income under some pressure
60
80
100
120
140
160
180
65 70 75 80 85 90 95 00 05 10 15
H ouse pr icesOffice rentals
Fo
reca
st
Real property cycleJohannesburg offi ce rents vs national house prices
Deflated by BER BCI
Inde
x (1
99
0=
10
0)
(log
sca
le)
Source: Absa; BER; Rode forecasts
0
20
40
60
80
100
120
140
160
180
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Inde
x (2
000=
100)
Source of data: I rrational Exuberance, Robert Shiller
Real U.S. home values
Compound growth rate of trendline: 0,6% p.a
0
50
100
150
200
250
300
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Inde
x (2
000=
100)
Source of data: Absa; Stats S.A
Real S.A. home values
Compound growth rate of trendline: 0,4% p.a
-5
0
5
10
15
20
07:01 07:07 08:01 08:07 09:01 09:07 10:01 10:07 11:01 11:07
Growth in S.A. house prices
Gro
wth
(%
,y-o
-y)
Source of data: Absa
+5%
90
100
110
120
130
140
150
2005 2006 2007 2008 2009 2010 2011
FlatsH ousesTownhouses
Residential rentalsCape Town
Inde
x (2
00
5:1
=1
00
)
Source of data: Rode's database
+4%
+4%
+6%
80
100
120
140
160
180
200
220
240
75 80 85 90 95 00 05 10 15
Real house pricesReal flat rentals
Real house prices vs real flat rentals(Deflated by Haylett)
Ind
ex (
19
90
=1
00
) (l
og
sacl
e)
Source of data: Rode; Absa; Stats SA
40
50
60
70
80
90
70 75 80 85 90 95 00 05 10
Perc
enta
ge
(%)
Ratio of household debtto disposable income
78%
Source of data: SARB
- 10
- 5
0
5
10
15
04 05 06 07 08 09 10 11
Growth inreal retail sales
Source of data: Stats SA
Gro
wth
(%
; y-
o-y)
Smoothed
2%
0
2
4
6
8
10
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
RegionalNeighbourhood
9%
3%
Shopping-centrevacancy rates
Vac
ancy
rat
e (%
)
Source of data: I.P.D. Annual Digest
0
4
8
12
16
20
00 01 02 03 04 05 06 07 08 09 10 11
Cape Town dec.Cape Town CBD
Offi ce vacanciesCape Town CBD vs Cape Town decentralized
(Grade A and B combined)V
aca
ncy
rate
(%
)
Source: SAPOA
10%
7%
20
40
60
80
100
94 96 98 00 02 04 06 08 10
Cape Town CBD (+5%)Cape Town dec. (+3%)
Nominal grade-A offi ce rentalsCape Town CBD vs Cape Town decentralized
R/m
² (log
scal
e)
Source of data: Rode's Time Series
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
00 01 02 03 04 05 06 07 08 09 10 11
Central WitwatersrandCape Peninsula
Industrial vacanciesCentral Witwatersrand vs Cape Peninsula
2.1 ( 4%)
3.2 ( 7%)
Vac
ancy
sca
le (
0 -
9)
Source of data: Rode's Time Series
Smoothed
10
20
30
40
90 92 94 96 98 00 02 04 06 08 10
Cape Peninsula (+8%)Central Witwatersrand (+2%)
Nominal prime industrial rentals (500m² units)Cape Peninsula vs Central Wits
R/m
² (l
og s
cale
)
Source of data: Rode's Time Series
Smoothed
7
8
9
10
11
12
13
14
90 92 94 96 98 00 02 04 06 08 10
Regional shopping centresIndustrial leasebacksDecentralized offices
National capitalization ratesby property type
Source of data: Rode's Time Series
%
Smoothed
4
6
8
10
12
14
16
18
20
00 01 02 03 04 05 06 07 08 09 10 11
BondsPLSs
Long-bond yieldsvs
PLS yieldsY
ield
s (%
)
Source of data: Rode's Time Series; Bond Exchange of SA
r² = 0,68
1. The American locomotive has run out of steam2. Expect below-average economic growth in SA for many years to come3. Residential property is still overpriced4. Shopping-centre cash flows will remain under pressure, especially the
smaller ones5. Nationally, quality non-residential properties are moderately oversupplied
but not overpriced6. Taking a 3-year view, listed funds’ distributions will decelerate to … say,
4% p.a. and a negative rerating may take place in tandem with long bonds
Rode’s products
1. Valuations 2. Rode’s Growth Points (annually) 3. Rode’s Sales (monthly) 4. Rode’s Report (quarterly) 5. Rode’s SA Property Trends (semi-annually) 6. Rode’s Retail Report (quarterly) 7. Ad hoc consultancy
