Friday, October 23, 2020

Covid-19: Botswana’s property market is not out of the woods yet

Khumo Properties chief executive officer, Outule Bale, of a management company which provides a wide range of commercial and retail property skills in Botswana and the Southern Development African Community markets told Sunday Standard that the full effects of Covid-19 are still to be felt.

The company, which amongst many other properties, owns and manages some of the biggest malls in the capital Gaborone, Railpark and Airport Junction malls; in certain sectors of the industry have been severely affected by lockdown. This severity was felt on the complete closure of many retail shops, restaurants, liquor outlets and non-essential office, warehouse and factory businesses, hospitality venues including all services such as boarding, functions, catering and conferencing. Many landlords, big and small, and even the owners of major office blocks and shopping centres are dependent on rental paid to service their loan obligations.

However, Bale indicated that the knock-on effects of tenants’ inability to pay rental is not expected to affect the value of properties in the short term as these values are determined by an income stream over a long period of lease.

“Should the Covid-19 situation continue for longer period than expected, property values could move downward, especially if income streams are significantly compromised.”

Even so, a further contributor to risk is the possibility of tenants’ businesses failing and them vacating leased premises, he said adding this would lead to vacancies and the resultant softening of rental rates in properties where casualties occur.

However, looking worldwide, the realization is that opening up trade markets is essential to save what is left of the economy, first locally and thereafter cross border. Due to the uncertainty of the length and future severity of the pandemic, Bale says it is too soon to predict the time when the property business will bounce back and to estimate the devastation caused to the industry as a whole.

Another local industry player and listed on the Botswana Stock Exchange, Far Properties, Head of Finance and Operations-Shinu Joy, indicated to this publication that, the sector is hit by the pandemic very badly, but the depth for far property is not very deep due the occupancy of essential service providers they keep doing business during the lock down period and generated income there by loss of income to far is not very high.

During these tough times and lockdowns just like in other sectors that provided a relief to their clientele, the property market also played a similar part in that regard. Far Property provided with rent relief in the form of discount for the effected period for those tenants who are badly affected by the lock down due to the pandemic.

As with Khumo Property, Bale said measures have been put in place to preserve cash for landlords by curtailing spending and deferring certain capital expenditure projects while in other areas declaration of dividends has been put on hold.

Many landlords he said they extended a helping hand to their tenants by either offering rental rebates/discounts or deferring part or full rental payments for periods affected by lockdown. On the other hand, tenants implemented new or enhanced alternative trade platforms during periods of limited customer visits to their stores as well as curtail spending. In addition, financial institutions (lenders) offered landlords deferment of loan repayments for defined periods of time.

LESSONS LEARNT POST COVID19

This pandemic has introduced new ways of doing business and everyday living. According to Bale, forward planning for both Landlords and tenants would need to involve taking insurance to cover unforeseen risks that would ensure business continuity during periods where economic hardship is being experienced. Some of the safety measures implemented during the Covid-19 period should be continued in order to maintain health and safety standards even post the event, he advised.

There are two activities that have been accelerated during the period. The increase in the number of staff working from home has shown that it is possible to sustain this situation. The resultant benefits include less traffic on the roads at peak times, less work-space required, more time for the family unit and savings for the worker in terms of travel costs and time. And benefits accrue for the employer in terms of savings in office costs and the lessening of provision of facilities for staff.

The other change to note is the increased number of purchases happening online. This activity has increased exponentially. As orders have increased the number of businesses offering the service has also gone up as well as the firms offering deliveries from multiple outlets. Many users will continue to avail themselves of this service.

The said reality is that; job losses will occur owing to businesses that fail, rationalization of work units, consolidation of businesses and job freezes in large organizations.

In comparison with other markets, South Africa the national lockdown period announced on 23 March 2020, and now since lowered a notch lower to level 1, is expected to have a negative impact on retailers who are not deemed to provide essential services.

According to Klaus-Dieter Kaempfer, Head: Commercial Property and Equity Investments, Absa Group sometime in May shared that: consequently, retail landlords are re-modeling their cash-flow forecasts in light of expected weaker rental collections. In an effort to mitigate the negative impact of the current market disruption, property sector leaders, through a forum called “The Property Industry Group”, have announced an industry-wide assistance and relief package for retail tenants that are hardest hit by complying with South Africa’s lockdown regulations in the face of the COVID-19 pandemic.

Kaempfer also said landlords will, on a case-by-case basis, also consider providing relief for office, industrial and hospitality tenants where the lockdown severely impacted the tenant and where it is justified.

In the United States, one of which are leading the pack with Covid19 cases and deaths; developments are extremely fluid, and tremendous uncertainty remains regarding how broadly the virus will spread and what its ultimate impact will be on public health, economic growth and financial and real estate markets.

The US’s Cushman& Wellfields experts have indicated that it’s premature to draw strong inferences about the virus’s impact on property markets and again the commercial real estate sector is not the stock market. It’s slower moving and the leasing fundamentals don’t swing wildly from day to day. The experts further opine that the virus has a sustained and material impact on the broader economy, it will have feed through impacts on property as well. 

At the time of going to print, other industry players Letlole La Rona and Turnstar Holdings had not yet responded to Sunday Standard inquiry on the subject matter.

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