Is your property investment secure from the recession?

The volatility of global economic factors and the rise of turmoil both geopolitically and after the slump of the worldwide pandemic has caused concern for many financial forecasters. Some predict that with a stagnation cycle in the works, a global recession may well be within the realms of possibility.

Adding to that, significant local concerns show low growth rates exacerbated by high unemployment levels, a dip in consumer demand, and a problematic exchange rate. Economists warn that investors may need to change their way of thinking in order to mitigate against considerable loss in investment. 

Real Estate remains a stable long-term investment

Savvy investors still point to real estate as sustainable long-term investments and encourage people to remain steadfast with their portfolios. The more property one adds to their investments the more significant the return will be. This is not a novel concept. But in times of turmoil, many remain guarded of their money.

It's essential to have a more grounded understanding of where to invest and what property portfolios are more attractive during these times. Cape Town, for example, seems to have a rosier appeal thanks to the influx of semigration from other provinces. This has tipped property prices in the seller's favour.

On a more national scale, commercial property, especially in the form of business parks being converted to residential estates, is outperforming other sectors significantly. Read more about that here.

Commercial hubs are favoured

South Africa's economy is fueled by small to medium-sized enterprises gearing up to protect their most valuable investment. That being their premises. Landlords are encouraged to research this field and determine which commercial hubs and properties are in demand before investing.

Landlords are seeing the market turn in their favour within suburban to urban shopping complexes and malls. This allows them the rare opportunity to be more selective of retail tenants. 

Warehousing space was a problem during the post-pandemic years of 2018 and 2019. This has only continued through to 2022 with a shortage of to-purpose industrial property both for sale and to let.

What to do when the threat of recession emerges

While the worst-case scenarios are often touted, one should remain optimistic and steadfast in their approach regardless of mitigating factors. We have seen more resilience within the market than anticipated which should give us reason to stay optimistic. Despite this, it is always in our best interests to remain prepared should the worst happen.

Bare in mind the following to remain prepared:

• Consider the timing of your investments - is it possible to hold through the cycle or simply delay?
• Pay close attention to your tenants. Take note of who pays on time and whether or not you hold on to enough security deposits. Always be aware that a decline in tenant business may harm their ability to pay rent.
• Maintain good relationships with long-term tenants. They are the ones who will see you through a bad cycle.
• If you're thinking of building upon your existing premises to increase volume, consider having a back-to-back potential lease in play.
• Consider your gearing terms - can you negotiate a debt switching or new terms?
• By zero-basing your investments you may have the opportunity to see where you can save more clearly and how to become more energy efficient in the process.
• If you own multiple retail properties, you should include geographical and class-based asset risks in your determination. I.E., how are they segmented? Shops, Industrial, Office Parks, or Flats?
• Research specialised property types that your tenants may have invested in. I.E., logistics, technology, or security-based as they remain essential movers in determining value.

If you are looking to buy or sell your home, contact one of our Real Estate Property Practitioners, follow the link: https://www.homesofdistinction.co.za/agents/

Homes of Distinction CC holds a Fidelity Fund Certificate issued by the Property Practitioners Regulatory Authority.