The latest research conducted by SA Property Owner’s Association (Sapoa) reveals that landlords of commercial property buildings are becoming increasingly concerned about the growth in the cost of rates and taxes, which have spiked at two-and-a-half times the inflation rate.
The report highlights that rates and taxes have increased at a higher rate than commercial property values since the global financial crisis and subsequent recession.
According to Gary Palmer, CEO of Paragon Lending Solutions, the high costs of rates and taxes, as well as interest rate increases, escalating municipal costs including electricity and water costs, maintenance services and municipal property rates, are resulting in commercial properties becoming very expensive to maintain, and in turn is lowering the demand for this type of property in South Africa.
“The impact is continued pressure on net property incomes, especially where landlords are unable to pass on cost increases to tenants. Increasing costs and the downward pressure on rentals has resulted in a margin squeeze in this sector.”
According to Palmer, residential property is proving to be a better investment choice than commercial property. This is due to the fact that the cost associated with owning residential property is less than commercial property.
Palmer says he has seen a remarkable increase in the number of clients seeking funding for residential property transactions as opposed to commercial property deals.
“Over the last few years most of the transactions we financed were for commercial properties. There has been a major change over the last few months as clients are now being attracted to the yields achieved in residential property.”