Real Estate Investment Trust (REIT) asset managers are substantially over-valuing properties without taking cognisance of the assets’ bank valuations, says Norman Raad, chief executive of Broll Auctions & Sales.
“Almost every REIT is trying to sell assets to reduce their gearing position but it is difficult for auction companies to sell such properties because they are grossly over-priced, with vacant properties optimistically being valued at an assumed forward rental yield of 9 to 10%.
“REIT valuations of marginal properties - those with short leases or vacant - are still at above market rate per square metre and above realistic yields.”
Raad says there has been a drastic increase in properties coming on to the market. “Asking prices have to come down before it is too late. If interest rates move, there will be unprecedented collateral damage.”
Commercial property does not hold the same weight as before with challenging financial times prompting investors to look abroad.
“As small to medium-sized businesses curb spending or halt growth plans until the economy improves, vacancies are going to increase and there will be rental reversions, coupled with the negative cashflows from holding cost and capital expenditure property owners will need to incur. As this trend continues, there will inevitably be price correction and opportunities will find their way to the market.”
He said the commercial property boom was coming to an end.
“Admittedly, South Africans are resilient... but the market must realise that sentiment and hope are not enough to cope with underlying fundamentals and challenges,” Raad adds.
Broll Auctions & Sales’ next multi-property auction in Joburg will be on September 12. For more details, phone 087 700 8289 or email [email protected] or visit www.broll.com.