Commercial properties are not selling fast in the current market and it is mainly the bigger property funds which are buying at present, a trend that is expected to last for the next 12 to 18 months.

“However, this is balanced out to a certain extent by increasing demand for inner city buildings, which has become a noticeable development at property auctions,” Paul Winterstein of Aucor says.

“Prices are expected to remain low for the next 12 months. So at the moment cash is king, and those with cash can expect good bargains.

“The cash-flush guys can dictate their own terms. The market has shifted from a seller’s market to a buyer’s market.”

Mr Winterstein says in the current economic climate day-to-day businesses are experiencing lower disposable incomes, and to maintain cash flow they have to let go of their properties at prevailing prices.

“So funds are able to cherry pick, buying just what they want.

“A big surprise in the market is the surge in demand for real estate in the inner city, especially in areas such as Braamfontein and Newtown where top dollar is being paid for well-positioned buildings.

“Even second-grade buildings are selling in these areas. A lot of developers are moving in as, obviously, they are seeing future potential there.

“Also, it is cheaper and there is less hassles to refurbish existing buildings than to build a new one. It costs R10000 to R12000/m² to build a shopping centre today, compared with buying an average inner city building at R1000/m² Hence the interest in inner city properties by developers,” he says.

Demand in these areas is not pushing up prices too high as developers have to take refurbishment costs and the lower rentals earned by inner city properties into consideration.

“At first sellers were not keen to drop their prices, but they have become realistic and as a result we are seeing more transactions concluded in this segment of the market,” Mr Winterstein says.

Of late Aucor has experienced a steady increase in transactions taking place and a rise in attendance at its auctions.

“Bidding has become more competitive, whereas six month ago fewer prospective bidders were willing to put their hands up.”

Bank finance remains stringent. It is common practice now for banks to insist that financing a building or shopping centre is subject to “tenant profiling”. The financial status of tenants is investigated and a check is run to ascertain the number of their creditors and how their debts are serviced.

Mr Winterstein says the mushrooming of office blocks has led to an oversupply at a time when demand has fallen off. “In Sandton there is a good deal of office space to let, much of this owned by the funds which are not prepared to negotiate leases. But hot properties are snapped up.”

Rentals in the residential market are more buoyant. Fewer would-be homeowners qualify for bonds and are renting properties they previously would have bought. The market in the affordable range has eased up, and there is an increasing number of buyers for these homes.

Source: Business Day