The property market must brace for lower yields should the current rush in property development lead to oversupply, a top economist has warned.
Dr Keith Jefferies was speaking at property forum organised by Boidus Media this Tuesday. Gaborone, the capital city is currently experiencing massive construction of properties, such as malls and office blocks, mainly funded by commercial banks and other financiers. Jefferies comments follows that of Investment Property Databank Director Jess Cleland, who told a local newspaper late last year that players must guard against building more offices, as they will soon be in excess. “More properties may lead to lower yields which will also affect financiers such as banks,” stressed Jefferies, also a former Bank of Botswana deputy governor. But more properties will lead to competition and better service for tenants.
Speaking at the same forum, Executive Director of IDP Stan Garrum stated that while property in Botswana is fast growing as opposed to demand, owners are still cashing in from their investments. He said their research has shown that property owners in the past year saw their return on investment declining by a margin of 3,1 to sit at 17 percent. “Vacancies have also gone down,” stated Garrum. He pointed out that office properties outclassed residential and retail properties in 2012. Vacancies stood at 1, 9 percent, which is ‘incredible’ based on the local market. Jefferies, who is also Managing Director of Econsult explained that, the other problem in Botswana’s property market is that there is unbalanced lending to property assets.
“Most financiers will prefer to lend property developers as opposed to residential. The Central Business District (CBD) in Gaborone is currently experiencing a boom after government announced that undeveloped plots would be repossessed. Most developers at CBD are using funds sourced from financiers which also poses risks to the financial market if current yields decline in future as a result of oversupply. “I am concerned that developments at CDB are not driven by demand, but rather by government’s plans to repossess undeveloped plots,” said Jefferies. He points out that Botswana Housing Corporation and Botswana Development Corporation (BDC) seemed to have taken a sit approach while private financiers are taking lead in the development of CDB.
Such state companies need to take the lead as their investments are a return for national coffers. While the property market is fast developing, lack of proper roads and other related infrastructures act as a setback to potential developers. Jefferies and Garrum agreed that Botswana is one of the countries, which do not have strict regulations on property development. Maje Maje, the President of Real Estate Institute of Botswana (REIB) said self-regulation has worked well for the property industry over the years. Self-regulation, to some extent allows big investors to muscle out small time investors.