The South African Property Owners’ Association’s (SAPOA) 50th Convention came and went with great pomp and ceremony as expected at the Sandton Convention Centre. Much as I would have relished the opportunity to be at the event, circumstance prevailed unfortunately. Judging by some of the media stories that started floating around shortly after the event, it is clear that the South African listed property fund industry is headed for some rough times, after a very good run for many years. The main reasons for this phenomenon are there for all to see. A sluggish economy with no obvious and immediate prospects for recovery as a result of a depressed global demand for commodities and a softening currency, the South African Rand (ZAR). Rising inflation is also right up there with the best of them.
With a persistent climate of reduced positive cash flows and rising expenses in the local environment, it is no wonder funds and asset managers are looking outside our shores to hunt for more optimum returns. Dollar- and Euro-based returns make sense to diversify against the ZAR-based returns, however in my assessment, funds do not necessarily have to go off-shore to chase after the dollars. Good quality hospitality funds are totally capable of bringing in those dollars. Half of the demand in numbers for South Africa’s tourism is generated from foreigners from the Americas, Europe and Asia. Visitors from some west African countries like Nigeria and Ghana also bring in dollars when they land on our shores, and they also stay in hotels.
The usual arguments against investment in hospitality property will need to be reviewed in order for these to be accepted as a viable alternative to put into listed property funds. More and more global chains are entering our markets and with them come operational and management expertise. It is also worth mentioning that the latter bring their client base with them and do not only rely on the domestic tourism market.
South Africa remains a lucrative property market for investors all around the world and the time that the benefits of its richness are enjoyed by of all its property types has arrived.