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With SA having shifted to lockdown Alert Level 4, many property developers were hoping to return to work. But with building construction sites not yet allowed to restart, the collective industry frustration is palpable. Estate agents, too, are being hampered by a trading environment where virtual showhouses are their only hope of motivating for new residential sales. HomeFront asked key industry commentators for their input on how the lockdown is affecting the local property landscape. How badly has business been affected in terms of halted development projects and off-plan sales?
Tricolt CEO Tim Kloeck says they had been hoping for more wriggle room around productivity issues for their operations based in Johannesburg. “We have the completed developments and the projects we are building. So it is an absolute disaster. Construction is a hand-to-mouth industry and so much is down to imports and exports, and small contractors who are affected. “I do not really understand why the construction industry hasn’t been allowed to reopen. It’s not like they’re inside in confined spaces; staff are working outside where the virus cannot spread as easily,” Kloeck says. “If it is about stricter health and safety regulations, contractors will do anything to get back on site in terms of being compliant.”
He predicts this will have a massive ripple effect left unchecked. “In construction the margins have been low for such a long time that this will be a nail in the coffin for a lot of the bigger players, unfortunately. They won’t continue to pay those staff because of affordability issues. The problem is, when the bigger construction companies fold, they take down so many of the smaller subcontractors too.”
LOSS OF MOMENTUM
Horizon Capital is a boutique developer of residential apartments in Cape Town’s Atlantic Seaboard and City Bowl. Its MD David Sedgwick likens minister of trade and industry Ebrahim Patel’s Level 4 decision to “operating off a dart board”. Sedgwick says logic did not seem to have been applied regarding when sectors of manufacturing could resume, while construction workers are watching their jobs evaporate. “There were numerous submissions from industry bodies, political parties and private companies setting out a very detailed, responsible and internationally accepted proposal to allow the commercial construction industry to get back to work,” he says. “These guidelines were devised by international best practice and consistent with other countries’ measures taken, to allow the construction industry to operate even under lockdown conditions. “As contained in a number of the submissions, it is unfathomable how mining – open-cast and underground – can be allowed to resume, and in some instances all the way up to 100% capacity, while commercial construction remains shut.
“The great uncertainty all firms are grappling with is how long Alert Level 4 could last and can they hold out for Levels 3 and 2, which may be months away, given the accelerating spread of Covid-19,” said Sedgwick. Rabie Property Group’s COO Colin Anderson says there has been a loss of momentum in the Cape Town company’s sales and letting, which will take time to recapture. The reason is not necessarily the delay in construction, but the fact that many – especially the retirement market – prefer to visit a show house physically and often won’t make life-changing decisions while there is uncertainty in the markets. The bigger issue for Rabie as a developer is a lack of progress. “Our main business, being that of development, is standing still because there is no construction activity. This will unfortunately cause delays in delivery to our purchasers and increased holding costs,” he says “Our Clara Anna Fontein Oasis Life development in Durbanville was progressing very well before lockdown – we were completing the homes of our first residents as well as our clubhouse. Now there will be a delay in handovers. “At Century City, our new commercial office building, Sable Corner, would have been complete this month. We’re also busy constructing Bridgewater One, a mixed-use development consisting of offices, retail, a hotel and residential components in Century City. Under lockdown Level 4 restrictions, this is all standing still.
“We have some exposure to the hospitality sector too,” Anderson says. “We foresee this sector starting to recover only towards the end of the year if all goes well.”
According to BLOK sales and brand manager Lior van Embden, there are obvious negative effects of the delays in construction and the uncertainty around a return-to-work date being felt across multiple industries. However, since lockdown started this Cape Town residential developer has been buoyed by off-plan sales of almost R25m at its development FOUR ON O, planned for Sea Point.
“While the pandemic and lockdown have created a lot of fear in the market, we are fortunate to have had continued sales across our developments, possibly linked to dropping interest rates and a weakening rand,” she says. “The recent volatility of the stock market has inspired renewed faith in the slow-moving nature of property. In times of uncertainty, a strong investment strategy is to invest in resilient suburbs that are the last to be hit and the first to return.” Balwin Properties is one of the biggest sectional title developers in SA. “The sooner we can get back to construction, the better it will be for the economy of the country,” says Balwin Properties GM Jaco Strydom. He emphasises, however, that the company and its banks and attorneys are all managing to operate remotely, so it’s largely business as usual for them. “Balwin architects and other professionals have been working furiously from a design and planning perspective,” Strydom says. “When we’re out of lockdown, we shouldn’t have any planning delays or challenges – we’ve tried to resolve all of that during this period.”
Nationally the real estate industry is also under pressure and representatives are calling on government to allow agents more operational freedom to transact. RE/MAX of Southern Africa regional director and CEO Adrian Goslett points out that the deeds office may be open but bond approval is near impossible because appraisers are not allowed to do home inspections to sign off on bonded amounts.
“Property to the value of R20bn is ordinarily registered in the deeds office every month. This creates much-needed liquidity in the market for buyers and sellers. If people are unable to sell their property easily, they cannot raise any capital. The number of distressed sellers is on a rapid rise.
“Real estate in isolation contributes about 5% of SA’s GDP and about 42,000 people work in the residential real estate sector,” said Goslett. “Many other organisations, Construction is standing still on Rabie Group’s Bridgewater One in Century City, Cape Town industries and businesses rely heavily on the real estate sector to trade.”
Which property sectors are likely to recover eventually? Anderson believes people will always need a place to stay. “Residential and retirement are possibly the more resilient categories. We also think seniors have realised that living in a retirement village or estate has many community benefits, especially during forced isolation and restrictions on movement.” Kloeck says Tricolt hasn’t seen much effect on sales so far, fortunately. “We’ve had eight sales of luxury apartments at Ellipse Waterfall in Waterfall City during the lockdown period. We’re currently in negotiations on a penthouse sale. It’s a great property in terms of position, being between Joburg and Pretoria. “So there is that side of the economy where people are looking for secure premium investments with limited risk. Residential property is a safe bet. And if you buy in the right area, you are going to get that capital growth.” Kloeck cautions, however, that the office market will be worse off owing to defaulting tenants. Anderson agrees. “All companies are now reassessing whether working remotely is the preferred option, and whether to reduce or expand their space according to new physical distancing measures. “Many businesses will not survive the lockdown either,” Anderson says.
“We have to remain open-minded and flexible about how we approach these new developments.” Yet there could be some industry positives. “So much of what we are all trying to navigate is new territory. For the construction industry this could bring about new hygiene and PPE measures to protect the labour force,” Van Embden says.
“It’s also testing how we plan projects and keep certain parts of development going under lockdown. For example, the City of Cape Town’s planning department is working remotely,” she says. “I’m sure this crisis will force innovation and a digitisation of processes.”
Martin Raymond, cofounder of the UK consultancy The Future Laboratory, says the pandemic will shape lives and how business is done, with a knock-on effect on the design and locations of both residential and commercial property.
“We’re already seeing that workers want to stay local, work local and live local, while remaining a part of a larger corporate structure. That’s going to have a huge effect on how we want our houses to look, our businesses to behave and our towns to be shaped,” Raymond says.
“For the first time in history, there is a captive global audience contemplating the future. Now is the chance to do things differently.”
“If it’s about stricter health and safety regulations, contractors will do anything to get back on site in terms of being compliant” Tim Kloeck, CEO, Tricolt