Covid-19 property diagnosis

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Covid-19 property diagnosis

THE Covid-19 lockdown has markedly changed short-term prospects for the Western Cape property industry.

Cape Town’s flagship real estate precinct, the V&A Waterfront last month reported that retail sales were on track for about 6% turnover growth year-on-year to the end of March – but plummeted 36% in March to close 3% up overall for the year.

The property’s 50% owner Growthpoint said the V&A’s property fundamentals were all in good shape until Covid-19 arrived in South Africa. “Unfortunately, the lockdown was imposed in peak tourism season, and visitors decreased from a seasonal norm of 80 000 a day to a low of 3 400 a day. Subsequently, visitor numbers recovered to between 15 000 and 20 000 per day.”

Growthpoint admitted that international tourism was a strength that set the performance of the V&A Waterfront apart in the pre-coronavirus environment.

Around 80% of V&A hotel occupancies are international tourists – who also contribute to about 50% of retail spend.

Growthpoint believed tourism will pick up again, but said it was too early at this stage to predict when. “However,

tourists returning will mark the critical point of recovery for this asset.”

Fairvest, which owns a number of Western Cape-based retail properties, has actively engaged with all its tenants on the impact of COVID-19 on their businesses in order to find sustainable solutions. The company said: “Negotiations are ongoing and we expect to have the majority of these negotiations concluded by the end of June.”

Fairvest said concessions – in the form of gross rental deferrals and rental credits – have been provided to tenants, dependent on their specific circumstances.

The company disclosed gross rental deferrals for April, May and June 2020 billings were provided to certain small, medium and micro enterprise (SMME) tenants – with repayment terms ranging from 3 months to 36 months and starting from July.

Of the gross billings in April and May, credits of 6% were conceded and deferrals were provided on 12% of total gross billings.

Fairvest said that for April – taking into account these concessions – around 77% of collectable billings were collected. For May the collection percentage, after concessions, increased to approximately 86% and for the first eight days of June around 82% of collectable billings had been collected.

Fairvest indicated its loan to value percentage as at the end of May was 36.7% – of which 61.2% was fixed.

Directors commented: “Fairvest confirms that all debt covenants are, and are expected to continue to be, comfortably met.”

One little hitch, however, is that the proposed sale of Tokai Junction to FPG Holdings for R190 million has been delayed by complications stemming from the Covid-19 outbreak.

The bottom line is that registration of transfer of ownership of Tokai Junction is now only expected around the start of September.

Rondebosch headquartered Tower Property initially indicated it had received 61% of May 2020 rentals that were due. A later announcement, however, confirmed receiving 79% of rentals due for May 2020.

Even better news was that Tower – under eased national lockdown restrictions – can recommence with development at its flagship Old Cape Quarter.

Tower said the site become operational on June 8, and expected the development to be completed in the third quarter of 2021.

On the residential property side things look delicately poised – but perhaps less tenuous than the retail segment.

Using large ‘affordable’ residential property developer Balwin as a yardstick – whose residential estates are located in high density and high-growth areas of the Western Cape – there appears to be sufficient reasons for longer term optimism.

Balwin operates a build-to-sell model, and is currently developing and selling between 2 000 and 3 000 sectional-title residential apartments each year.

Amongst Balwin’s developments generating the highest number of apartment sales in the financial year were De Zicht in Somerset West.

Development at De Zicht is expected to be completed in November, and already 710 of the 876 apartments developed have been sold.

This is a good conversion rate at De Zicht – remembering Balwin’s recently completed Western Cape projects – Paardevlei Square (87 units), The Jade (432 units) and The Sandown (636 units) – have all been sold out.

It will be interesting to see progress at ongoing developments. At last count Balwin’s 1044 apartment development – The Huntsman in Macassar – had sold 128 units ahead of completion in November 2023.

The 1 116 apartment Fynbos development in Cape Town’s southern suburbs – which is only due for completion in February 2024 – had sold 136 units.