Catious Optimism defines the Mood in the Property Market

Despite the subdued economic environment, the Botswana property market remains resilient and is showing signs of recovery from COVID-19 pandemic shocks amid growing levels of unemployment in Botswana, a report by Stockbrokers Botswana has shown. Bongani Mabhena, the Research Analyst at the firm, expects the recovery of the property market to continue as inflation is expected to go down every quarter in 2023. Statistics Botswana indicates that headline inflation fell from 9.9 percent in March to 7.9 percent in April 2023 but remained above the Bank of Botswana’s (BoB) medium-term objective range of 3 – 6 percent and lower than the 9.6 percent in April 2022. On a quarterly basis, inflation decreased from an average of 12.6 percent in Q4 2022 to 9.4 percent during Q1 2023. The central bank projects that inflation will revert within its target band by Q2 2024. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="3" ] Muted residential market In his report, Mabhena argues that affordability is key to unlocking demand for residential properties as high inflation levels curbed the demand in 2022. In 2021, a property expert Sethebe Manake observed evidence of an affordability crisis, citing an over-supply of stock as more and more people looked to sell their properties as their financial rescue. “The COVID-19 pandemic prompted a lot of homeowners to sell their properties under the asking price,” Mabhena says, supporting Manake’s point: “Due to the uncertain economic environment, there was a rise in the number of homeowners selling high-end properties due to pandemic-fuelled pressure on their incomes, leading to a decline in prices in Botswana’s high income residential property sector.” He observed that the average price of residential properties sold in the second quarter of 2022 decreased by 3 percent to P836 062, compared to the previous quarter. This reflected a decrease in the number of high valued properties traded in the quarter under review. Values of prime residential properties have also been relatively flat for a few years now, Kamogelo Mowaneng, the Chief Executive Officer (CEO) of Letlole La Rona, has observed. In the Group’s annual report, she says this has resulted in many institutional investors exiting more significant residential complex investments. Manake had previously told this publication that valuations fall when trade levels fall, hence expecting that this will happen over time, though at a lesser rate. But Mabhena noticed that the fourth quarter of 2022 saw the recovery of residential market sales after peak inflation was reached in the third quarter. An upbeat Mowaneng adds that “the steady growth in the country’s middle-class population means that sales and rental demand in this segment will likely continue for the foreseeable future”. Weak office space Elsewhere, Mabhena noted that COVID-19 scares have slowed down, which saw the improvement in the office sector with employers seeing employees return to office locations and some employing a work-from-home hybrid system. “This improvement in activity has reduced the rise in property vacancies and possible job layoffs,” he says, adding that “the COVID-19 pandemic induced a slowdown in leasing activity within the office sector”. “Businesses were forced to close, and most were forced into remote working. While the economy continued to recover from the pandemic, the market for office space remained weak due to increasing supply from completed construction developments.” According to the BoB, a report by Riberry Botswana showed that the market for office space remained weak due to increasing supply from completed construction developments such as the Innovation Hub, Pinnacle Park and Botswana Accountancy College north campus. Ribbery showed that demand remains reasonable and slightly improved as the government took up some vacant properties. However, the company worries that the merging of some parastatals is likely to curtail the growth of demand for office space by the government. “In addition, there is a possible likelihood for a slowdown in uptake at the Central Business District (CBD), should government institutions remain in their current premises and location,” Ribbery noted, adding that the supply of office space is projected to increase further, given the ongoing construction projects and planned office buildings at the Gaborone CBD, such as by the Botswana Stock Exchange and Botswana Building Society. “These will further exert downward pressure on rentals, especially in the decentralised office locations,” Ribbery noted. Interest rates, inflation impact Mabhena has warned that continued interest rate hikes would create uncertainty to investor demand. Although Botswana is behind the curve, BoB’s Monetary Policy Committee has increased interest rates three consecutive times in the past year to tame inflation. While Kgori Capital’s Kitso Mokhurutshe does not expect any changes to the Monetary Policy Rate in 2023 following the significant decline in inflation in April, he believes external forces may force its hand. “Pressure on the Rand may force the SARB (South African Reserve Bank) to aggressively hike their interest rates in order to defend their currency,” the Investment Analyst said this week. “This may force BoB to raise rates as well in order to avoid capital outflows.” The SARB increased the repo rate by 50 basis points to 7.75 percent in March 2023, the ninth consecutive hike since November 2021, to anchor inflation expectations more firmly around the midpoint of the 3 – 6 percent target range and to increase confidence of achieving the inflation target in 2024. Mabhena is also concerned about escalating construction costs that could be a challenge for companies that are looking to expand. Manake previously observed that COVID reversed the fall in construction prices because of the cost of logistics and health risk in imports. Supporting policies are suited for growth in the industrial sector According to Mabhena’s report, Botswana’s industrial sector has reported an ongoing rise in demand with 2022 yields on the industrial market at 8.5 percent. The government’s new industrial strategy and supporting policies, which are designed to foster and sustain growth in the all important industrial sector, have translated into steady warehouse demand throughout the pandemic, he observes. Letloles’ CEO shares these same sentiments. “Botswana government’s Economic Recovery and Transformation Plan (ERTP) and supporting policies are suited for growth in the industrial sector,” she says, adding that demand for warehouse space has continued to rise, which has left rental values relatively unscathed and helped keep vacancy rates low. Mabhena indicates that the vacancy rates in this sector have held steady within the range of 1 percent – 3 percent. “The supply of unoccupied big warehouse space has decreased, while the demand has improved. The availability of prime location in the industrial space is expected to improve going forward.” Retail space remained fair The retail sector, on the other hand, has seen sustained occupancy levels due to the flexibility of landlords with regards to rental charges which Mabhena observes helped protect retailers from the impact of pandemic-driven lockdowns. He noticed that the demand for retail space remained fair across all market segments in 2022 while the supply is expected to increase following completion of projects such as the Fields Mall in the CBD and the proposal of two malls in Mogoditshane. In addition, other centres with good demand for retail space besides Gaborone are Jwaneng, Selibe-Phikwe, Maun, Molepolole, Francistown, Mahalapye and Ramotswa. The BoB report notes that most of these locations have a few retail schemes, to be anchored by reputable supermarkets, at planning and/or construction stage. [/ihc-hide-content]

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Catious Optimism defines the Mood in the Property Market

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