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Growthpoint warns of up to 20% decline in SA property values

Due largely to the Covid-19 economic fallout.
Norbert Sasse, Group CEO of JSE-listed property giant Growthpoint. Image: Moneyweb

The top executives at South Africa’s largest listed real estate group, Growthpoint Properties, on Monday gave an ominous warning that commercial property valuations in the country could plunge by between 10% and 20% over the next two years in the wake of the Covid-19 fallout.

Responding to questions during an investor conference call, Growthpoint’s group CEO  said that SA’s economic contraction is being exacerbated by Covid-19, which will have an impact on commercial property values.


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“Clearly valuations are coming under even more pressure … [Commercial property] values are likely to drop by between 10% to 20% over the next 12 to 24 months. Driving valuations down is the lower income [from rentals],” he said.

In an interview with Moneyweb ahead of the investor call, Estienne de Klerk, CEO of Growthpoint’s South African operations, shared similar sentiments.

Asked about the impact of the Covid-19 economic fallout on Growthpoint’s property valuations, he said valuations were generally “commented on” and included in the group’s year-end results, which are published in September. He could not give exact figures, but said devaluations were likely.

“Intuitively, if you are getting negative rent reversions and have to offer rental relief considering Covid-19, property devaluations are to be expected. I would say the [commercial] property industry can anticipate reductions in valuations of up to 20%,” he told Moneyweb.

Read: Headwinds for Hyprop as SA portfolio devalued by R1.1bn

Most listed property companies have been coy about commenting on the expected decline in commercial property valuations, due to “the fluid situation” and “unprecedented uncertainty” around Covid-19. Growthpoint did not mention SA valuations in its investor update presentation document, however, several analysts and investors questioned the executives about possible declines in valuations during the conference call.

A JSE Top40 Index company, Growthpoint is regarded as a bellwether in the industry, not just in terms of size, but in terms of transparency. It has a local and international portfolio of office, retail, industrial, logistics, hotel and hospital properties and investments worth more than R150 billion.

Its South African portfolio, including a 50% stake in Cape Town’s iconic V&A Waterfront, is valued at almost R89 billion.

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Responding to further questions from analysts on the issue, Sasse, however, noted that the expected drop in local commercial property valuations for Growthpoint specifically is likely to be less severe, due to the group’s strong balance sheet and conservative valuations.

“For Growthpoint, we expect valuations to drop by between 10% to 15% … [Our] valuations will need to drop by more than 30% to affect our debt covenant levels. We don’t expect this,” he said.

Reacting to Growthpoint’s comments, Craig Smith, head of research and property at Anchor Stockbrokers, said the group’s outlook is a cautious one.

“This is not surprising given the weakness in the economy, which has been substantially accentuated as a result of the pandemic and containment measures. We know that there is a lag between [the impact] on the economy and on the property market, therefore we think it is reasonable to expect that property values are likely to decline between 10% and 20% over the next 18 to 24 months,” he said.

“Worth highlighting is that this range is an average and therefore certain properties and property portfolios may experience declines lower or higher than this range… In this environment we expect lower quality assets to come under increasing pressure [more sensitive to economy] and for higher quality assets with strong covenants to outperform,” he added.

John Jack, CEO of Galetti Corporate Real Estate, said while he agreed with Growthpoint’s commercial property valuations forecast, he believes that a significant reversion should have been priced in pre-Covid19.

“All that’s happening now is that property investors are having to face up to a protracted low growth environment with large rental reversions, whereas prior to the pandemic they could take an optimistic view that they could ride out any rental declines,” he said.

Read: Massmart CEO slates ‘ridiculous’ rent escalations

“We are now seeing rental escalation being signed far closer to Consumer Price Index [CPI] levels, if not actually tracking CPI… If landlords have long-term rentals in place, they could hope that the rental demand could recover during the term of the lease agreement, effectively allowing the investor to bridge the poor market,” noted Jack.

“However, Covid-19 has come at the wort possible time, the tail end of an already declining South African market… This means very few leases will bridge the gap, forcing landlords to face the fact that the properties will devalue. The upside is that this provides opportunity for new investors to enter the market at the end of this correction,” he added.



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Should have hedged..

When you’ve riding a 10 year bull market, valuations at all time highs, junk status on the brink and an epidemic starts to emerge 2 months before markets peak,

should have hedged.

The valuations, based on actual net income, should be done monthly but who is going to trust values for the next couple of years?

In some instances actual valuations will be beyond 30% lower, depending on the actual numbers. For example, L2Ds Sandton City has seen footfall drop way beyond 30% as it dependant on weekday shoppers, most of whom were workers who are just not there.

Operating costs may increase in some properties, especially as the municipalities want annual increases on everything.

Where are those houses being given away? My wife works from home as an internal auditor. My son is in grade ooo. The only reason we are still in gauteng it’s because food manufacturing jobs are scarce in WC. Otherwise they might leave me behind.

20% decline in blue chip property with blue chip tenants!
Then look at residential property-interest rate drops help but colossal increase in unemployment expected, economy shrinking probably at 10% , then a very slow recovery, emigration of skilled and wealthy, disinvestment due to social unrest and political instability and you probably have a 30% decline in buy to let properties and 25% in residential.

Off the back of an already pre-COVID 25-30% decline in some blue chip residential areas like Cape Town’s Atlantic Seaboard. May also weaken municipalities residential and business rates base over time in circumstances where their finances are already stretched.

These executives enjoyed the journal entries they passed to create the values in their financial statements. Now they will see how easily non existent value is destroyed as easily as it is created = a simple journal entry.

Those valuation models are simple. Rentals less vacancies less expenses gives an income which is capitalised at a rate. Increase expenses, increase vacancies, temper rentals and increase the cap rate. 20% is optimistic, that spreadsheet spews out a 40% reduction easily when you combine all the factors.

The good news? There was never cash inflow to back the reported earnings of these companies. Now there is no cash outflow to back the reported losses.

Cynical? Well I expect management teams will collude with auditors to report these adjustments as one-time events. See, only upward valuation adjustments support bonuses…

except it’s non-linear when those entries were tied to 90% gearing. It goes from profit to massive losses very quickly.


The real profit is and always was rentals less expenses. For the past decade this circus sector has after that processed journal entries to upwardly value property. No cash involved. Barring a change in rentals, the operating income line for these companies will not change even if you halve the property valuations.

Johan, you are spot on. Its all about the managers and their interests, not those of the shareholders. Cap rates should have moved up by at least 150 bpps but you will see them magically stay were they were.

When would rates and taxes be adjusted down by 20%?

Take a cue from the DA run Western Cape, ANC, the demand for residential property is still very high there despite the high pandemic figures. The facts don’t care about political correctness!

LOL what a load of twaddle…

They can’t even give houses away anymore in the WC, as the property market, which was heavily overpriced compared to the rest of the country, has imploded spectacularly.

People have realised that Cape Town is crime infested, especially with murderous (endemic) gangs on the Cape Flats which roam freely in your leafy suburbs.

Traffic is a 24/7 nightmare, with people regularly spending 2 to 4 hours a day getting to and from work….

Living in the WC offers no protection against EWC, NHI, rolling blackouts and other horrors this country holds for its citizens.

WC is also the Covid Capital of SA, despite what spin DA members try to put out there about testing. Highest Death Rate in the Country says it all….

The property pain in the WC (and CT in particular) is only beginning to play out. The smart money moved offshore, and is no longer propping up the house of cards…

rfjock where are these houses that are being given away. I want one.

Honourable Highness : I dont agree with your assertion in I know that in a lot of “upper” Cape Town areas properties are listing at 70% of what they were a year ago : Hermanus as an example have probably 200 houses on the market with the resultant reduction in prices. Flats in Kenilworth area selling at 80% of their Municipal (rateable value ) :
Put simply RSA is a MESS .

Please don’t tell me that you are semigrant pillock who splurged R6Million for that Kenilworth townhouse 2 years ago?

A quick gander at property sites shows “Price Reduced” all over the place, in all suburbs of CT. Houses staying on the market month after month, then quietly disappearing after the 6-month subsscription expires…

But let’s be kind. You are happy with 80% value after 2 years of investment (let’s exclude the MASSIVE DA CoCT rates & levies, insurance, eviction costs, BC levies etc etc).

Smart money moved offshore in same timeframe and enjoyed a compound growth of 30+%, while you are sitting at -20% (and that is very optimistic….more like -30%)

Smart money is called smart for a reason….

But keep trying to talk up the market with your delusional utterances. Not at the hot air in the world (even from Windebag himself) will prop up this dead market…

Know people who have bought sea plots for close to a million and now nobody wants it.

This ‘warning’ sounds like it is addressed to Growthpoint shareholders, but very good news for prospecting buyers and rent seekers.

Malls and office complexes are feeling the heat at the moment. And this is even before RET and EWC rhetoric

Not sure if this reporter has fact checked the V& A was sold for R 10 Billion in 2010. Now valued at 89 BN????? Am I Missing something?

End of comments.



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