Real estate developers are spending billions of rand despite the economy being buffeted by multiple headwinds.
Property companies Growthpoint and Attacq have each earmarked more than R1bn in capital expenditure to continue developing their South African portfolios.
“It’s quite remarkable. We’ve got a lot of headwinds in South Africa but we’ve managed to develop sizeable chunks of land during these uncertain times,” Attacq CEO Jackie van Niekerk said at the release of the company’s interim results.
Attacq, which owns 70% of the Waterfall precinct, has almost R560m in developments under construction and more than R860m in approved pipeline developments.
This equates to more than 44,600m² of development activity focused at the precinct which, on completion, will cost the company about R1.4bn.
“Which is quite a significant amount of construction activity, again in the backdrop of a country with low GDP growth, almost no GDP growth. We've got load-shedding, high interest rates and yet we managed to get R1.4bn worth of development activity in the ground.”
Developments under construction include the third phase of a residential development and midi-unit logistics hubs; while pipeline developments include a building in a collaboration hub and a client-led logistics development.
In a country with almost no GDP growth, load-shedding, high -interest rates we managed to get R1.4bn worth of development activity in the ground
— Attacq CEO Jackie van Niekerk
Van Niekerk said the company looks through the economic cycle instead of taking decisions based on knee-jerk reactions.
“It's pointless sitting on the sidelines and complaining, we say, ‘We’re in South Africa, we’re highly invested in South Africa, we have to make it work’ and that's why we're positive.”
The property group declared a distributable income per share, a profit measure, of 36.9c for the six months ended December, up 2.8% from the 35.9c per share posted a year earlier.
The company advised the market of a full-year distributable income per share growth of between 10% and 12.5%.
Its competitor Growthpoint, the largest real estate stock on the JSE, is also eyeing more investment despite high interest rates.
It spent about R1bn on new developments in the six-month reporting cycle, the bulk of which was allocated to its industrial sector. The company has earmarked a further R1.6bn for other commitments, in line with its strategy to optimise its local portfolio.
“We continue to invest in South Africa. Capital allocation is very topical and given the scarcity of capital there is a bit of a competition as to where we invest that capital now ... the current commitment doesn’t necessarily reflect the future. Ultimately, it will be driven by returns,” CEO Estienne de Klerk said in an interview.
“Where there is solid demand we will allocate capital. But capital is more expensive, and for real estate at the moment it is a bit more difficult to come by,” he said.
The largest recipients of the R1bn capital expenditure were the new industrial warehousing and logistics developments in Isando, while a further R1.6bn will go to office and retail developments in Cape Town.
“We’ve seen the fundamentals improve for real estate, but I think the reality is the economy is still very difficult and the increase in interest rates will slow the economy down, unfortunately,” De Klerk said.
The Reserve Bank hiked the repo rate at 10 consecutive meetings since November 2021 to combat high inflation, before holding at 8.25% at its latest four meetings. High interest rates make it more expensive for developers to finance debt.
But some of South Africa's biggest banks forecast a drop in interest rates from July, which could ease the cost of debt.
Growthpoint declared a distributable income of 71.2c per share, an 8.6% drop from the 77.9c posted a year earlier.
The company revised its expected full-year distributable income per share, signalling to the market an expected decline of 10%-12%; a result of high interest rates across its businesses, which it expects to be greater in the second half of its financial year.
Despite the dip in distributable income, Cape Town’s V&A Waterfront saw a stellar performance over the period, boosted by an upswing in tourism, and there is talk of future developments at the tourist attraction of which Growthpoint owns 50%.
De Klerk said that in a market that has been as tough as real estate, the company is grateful that that asset is disconnected entirely from the globe’s experience.
More than 3-million people visited the Cape Town landmark in December 2023, up by a quarter from a year earlier. This helped it reach total footfall of 25-million in 2023.
The Sunday Times last week reported that the Waterfront could undergo a R20bn revamp.
Growthpoint has a basket of development rights, De Klerk said, and has made an application to increase this basket.
“Given the demand that we have in the V&A, its strategic location and the role it plays in the Cape Town economy, we believe it's key for [the city] to continue to support the development of this asset,” said De Klerk.
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