Speaking to Channel Africa on Wednesday, a leading real estate executive said improved visibility around key macroeconomic indicators is helping investors better assess and price risk in a sector dependent on long-term capital.
The executive said progress on several fronts, including SA’s removal from the Financial Action Task Force grey list, the moderation of inflation to the new 3% target and the decline in interest rates to below long-term averages, had contributed to a more stable outlook.
Structural reforms underway within the economy, although not erasing risk, have made the environment more interpretable. This, the executive explained, allows investors to better understand the long-term risk profile of listed property, which is an asset class designed to take capital through economic cycles.
On the question of how a future sovereign upgrade to investment grade would affect real estate investment trusts, the executive said such a development would significantly lower the cost of capital and expand access to funding. Improved investor confidence would make it easier for international investors to allocate capital to SA.
Increased inflows would boost liquidity in local capital markets, which are the same markets where listed property companies raise funds. Higher liquidity would then push the average cost of capital to more efficient levels, strengthening funding structures within the sector and supporting long term investment.
Removing SA from the grey list has already translated into measurable improvements. The executive said debt capital markets have seen substantial inflows, and credit spreads on listed property issuances have tightened by more than 20 basis points over the past few months. This reflects the return of investors who had previously been cautious due to concerns about financial governance and regulatory compliance.
He said the reforms required for SA’s grey list exit were significant, involving improvements in monitoring, counter terrorism financing oversight and other regulatory enhancements. These changes have contributed to the more positive messages now coming from international rating agencies. He noted that Standard and Poor’s recently issued an improved outlook for SA, something the country had not seen in more than two decades.
Addressing the impact of reduced load shedding on listed property performance, the executive said the easing of power cuts had meaningfully improved operating margins. During load shedding, companies incurred high diesel costs to keep generators running at commercial properties. These expenses eroded profitability. With fewer power interruptions, operational costs have fallen, stabilising rental income and improving margins.
He added that energy reforms, particularly the growth of private electricity generation, have created new opportunities to enhance asset performance. Some properties now source part of their power from solar installations, improving long-term operational resilience. The executive said this shift is positive overall, even though the transition requires upfront investment.
On which segments of the property market stand to benefit most from improved economic confidence, he said, the retail sector is likely to see the earliest gains. As inflation moderates and interest rates soften, consumers will be in a better financial position, which should boost footfall and trading activity in retail centres. This is expected to support stronger rental performance for retail property portfolios.
He also highlighted potential opportunities in the industrial property segment linked to electricity distribution reforms. If reforms allow for greater liberalisation, industrial properties with large roof structures could generate surplus solar power and feed it into the national grid.
He described this as an exciting development to watch, noting that such a model could improve electricity stability nationwide while creating new revenue streams for property owners.
–ChannelAfrica–
