Latest GDP results and the impact on the commercial property sector
March 6, 2019

John Jack, CEO of Galetti Corporate Real Estate

Figures released yesterday by Stats SA clearly show the significant pressure that the South African economy was under during 2018. It was a perfect storm that never happened.

Not only was the country facing internal economic pressure, but Mother Nature then turned off the taps leading to massive declines in agriculture which resulted in a contraction of 4,8% for the year. This negatively impacted numerous sectors.

While the Real Estate sector found itself contributing significantly to the positive growth conversely, the construction sector saw it’s its worst year in two decades in 2018, according to the GDP figures.

This decline makes it the second year running for the construction industry which has seen share prices of the larger listed companies contract heavily and in certain circumstances the companies themselves land up in business rescue. Basil Read, Group 5 and Aveng have all been significantly impacted, among others, which has affected various areas of the property market.

Following the surge in projects before the Soccer World Cup in 2010, capital projects in SA have been in decline. Various factors, including the uncertainty in the political environment which gives caution to investors, ultimately staves off any confidence to invest in any capital projects.

Slow payments by government on already approved state contracts and leases have impacted not only the construction sector but also large listed landlords with exposure to these leases.

SONA and the budget speech clearly showed that the government, and in particular the finance ministry, are apprised of the situation and are taking active steps to turn the country around and re-invigorate investor confidence in the country. This will of course have a direct positive impact to the commercial and industrial property sector.

The growth outlook for 2019 is still relatively muted but is certainly projected to be better than in 2018, which saw Q1 (2,7%) Q2 (0,5%) Q3 (2,6%) and Q4 (1,4%) gives us a total GDP growth of 0,8% for the year.

As with the budget speech, the figures may have been difficult to digest for many, but we believe that there are numerous positives that have come out of it for the property sector, particularly for the commercial property industry. The positive outlook from SONA 2019 will continue to have a promising knock-on effect throughout the industry.

Key facts from the GDP release for the fourth quarter of 2018: (Source: Stats SA)

  • Real GDP in the fourth quarter was up 1,4% quarter-on-quarter (seasonally adjusted and annualised).
  • Unadjusted real GDP in the fourth quarter was up by 1,1% year-on-year.
  • The South African economy grew by 0,8% in 2018 compared with 2017.
  • Nominal GDP in the fourth quarter was estimated at R1,26 trillion. For 2018, the estimate is R4,87 trillion.
  • Expenditure on GDP in the fourth quarter grew by 1,6% quarter-on-quarter (seasonally adjusted and annualised), largely a result of household consumption expenditure and net exports.
  • Expenditure on GDP grew by 0,7% in 2018 compared with 2017