Leading listed retail property fund Hyprop Investments has expanded its investment portfolio with the acquisition of approximately 31,3% of listed property unit trust Sycom Property Fund (“Sycom”) for R1,24 billion

Tuesday, 04 September 2007 02:00

What has happened to building costs?

The FNB CPF Commercial Property Building Cost Index, constructed by Industry insight, has seen slowing growth over the past 18 months, but this slowdown is expected to be a temporary reprieve for the construction industry.

Construction IndustryGood old scarcity is accounting for much of the pricing pressure which developers are encountering. Demand for commercial space is outstripping supply and developers are hard pressed to bring new projects on stream.

 “What we have noticed,” states Neno Haasbroek, CEO of Sycom Property Fund, “is that there has been some improvement in the pricing on smaller jobs – those in the R20m region – but for the larger projects – the R500m or R1bn developments – it is hard to find competitive pricing.” The large construction companies have their hands full with the infrastructure projects under way in South Africa and this is likely to continue over the coming years.

Some impact from the higher interest rates is filtering through, but the underlying trend of too little supply to satisfy the growing demand means that costs are expected to see building inflation turning up again.

Although the cost of materials is rising – cement, for example, is currently being imported –contractors and service providers are raising their rates at well above inflation levels. With significant expenditure on infrastructure (such as the World Cup Stadiums, Gautrain and the Coega industrial development zone) competing with commercial developers for resources, there is likely to be renewed pressure on building costs in the years ahead.

Pity the developer outside the main metropolitan areas. If there is a large project, which cannot be handled by local contractors, they will be pushed to find anyone to deal with the development. “Even if they can get a contractor,” notes Haasbroek, “the quotes are likely to be rather uncompetitive.”

For an investor in PUTs, this represents encouraging news. “With costs escalating at present rates,” says Craig Hallowes, spokesperson for the Association of Property Unit Trusts (APUT), “rentals for existing properties will be rising as they come up for renewal.”

Haasbroek gives an example: “We can’t bring a new office block on line in Sandton for under R120/m2 at present. Although I don’t think that we are yet at the point where rentals will be running at replacement cost, if the rent is currently R70/m2 or R80/m2, then I think that you can expect a 20% rise when renegotiation takes place. This is more of an issue than it has ever been before.”

In the past, the lead time to bring an office block on stream was about 12 months, while land was readily available and rezoning took place rapidly. This meant that supply could respond to increases in demand relatively rapidly. Now, however, councils have tightened up markedly on rezoning. Add to that building cost inflation and it is easy to see that supply is no longer as flexible as it was historically.

In the case of retail developments, a higher number of subcontractors are used for specialist items such as glass and aluminium. This is placing additional strain on retail developments as the specialists are notably scarce at the moment.

 

Thursday, 16 August 2007 02:00

Sycom buys abroad due to local shortage

Listed property unit trust Sycom Property Fund said yesterday it had acquired a 22,5% interest in an offshore property fund for R257,5m

Wednesday, 25 April 2007 02:00

C how it runs...

The price of listed property fund ApexHi's C units are up a staggering 245% in six months. Not too shabby a return for investors who bought the stock at listing in October 2006 as a higher-risk alternative to ApexHi's existing A and B units. C units closed at 280c on listing day and touched 690c/share last Wednesday.

Monday, 20 November 2006 02:00

Sycom lifts payout growth 8%

Listed property unit trust Sycom Property Fund reported on Friday that its distribution growth for the six months to September had increased 8,05% to 59,40c a unit.

South African property company Sycom increased its first-half headline earnings per share by 28 percent and confirmed on Wednesday its full-year target for 5 percent growth in distributable earnings.

Wednesday, 02 November 2005 02:00

Bricks, mortar put funds on top

Strong capital growth in their underlying portfolios was the main driver of Growthpoint Properties and Sycom Property Fund's out performance of other listed property funds at the Financial Mail/Investment Property Databank (IPD) awards last week.

Thursday, 13 October 2005 02:00

Sycom Property Fund office portfolio excels

Sycom Property Fund announced that its prime Cape Town Foreshore SHG Building offices are now fully let

Wednesday, 28 September 2005 02:00

Genoteerde eiendom ry steeds die golf

Die Suid-Afrikaanse genoteerde-eiendomsektor het vanjaar sy stewige lopie van die laaste paar jaar voortgesit en die fundamentele toestande in die eiendomsbedryf is in dié stadium die beste nóg.

Growthpoint Properties says it has disposed of a significant portion of its listed property investment portfolio for a total consideration of R671 million

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