MAIN IMAGE: John Jack, CEO, Galetti Corporate Real Estate
John Jack, CEO, Galetti Corporate Real Estate
A record-low voter turnout for the elections this year has signalled citizen apathy and a lack of confidence in the democratic process. But many people don’t realise that when it comes to local municipal elections their vote matters more than ever – as the municipality responsible for their Ward has a direct impact on the value of their property.
This is the argument made by John Jack, CEO of Galetti Corporate Real Estate. In the article below, John breaks down why service delivery – which indicates a functioning municipality – directly influences investor confidence and vacancy rates, and in turn the property values of an area.
It appears torrential rains across Cape Town did much to damper voter spirits with multiple news outlets reporting a record-low voter turnout on Election Day 2021. Low voter turnout was not restricted to the Western Cape as every province reported a drop in numbers – signalling citizen apathy and a lack of confidence in the democratic process.
“Unfortunately, many people don’t realise that when it comes to local municipal elections, your vote matters more than ever – as the political party that wins in your Ward may have a direct impact on the value of your property,” explains John Jack, CEO of Galetti Corporate Real Estate.
While voters await the local government results, Jack breaks down what new municipality could mean for both the residential and commercial property values in your area:
Service delivery
“The ability for a municipality to provide adequate service delivery in the area has a significant impact on whether a property will grow or drop in value once a change of leadership takes place,” explains Jack. “No one wants to invest in property or build a home in an area where their quality of living (or doing business) cannot be assured.”
Service delivery refers to the delivery of basic services such as water, electricity, sanitation and refuse removal to an area and this issue has been a huge point of contention between South Africa’s two biggest political parties. The country’s second-biggest political party, which controls the Western Cape, has argued that the ruling party’s inability to provide consistent service delivery to the rest of the country is the reason they should be voted out of power.
“Without delving into political rhetoric, it is true that a functional municipality generally produces a high level of service delivery: electricity, clean streets, running water and a functioning town planning department does create desirability for real estate investment as an asset class,” says Jack.
Investor confidence
“There is generally a strong link between a good municipality and investor confidence in an area as adequate service delivery can boost property prices to investor confidence and demand.”
In contrast, while the province of Kwa-Zulu Natal has struggled with service delivery protests in multiple municipalities – reaching a peak with looting and riots in the winter months of 2021- this does not seem to have dampened investor confidence. Major infrastructure upgrades are being made to the coastal town of Ballito as part of the building of the Ballito Village project by developer Arcis and substantial investment has been made in the commercial real estate sector with the recently announced purchase of two shopping malls by Futuregrowth Asset Management’s Community Property Fund.
Vacancy rates
The Western Cape has generally reported higher levels of service delivery than the rest of the country, especially when it comes to loadshedding as the City of Cape Town does not rely on Eskom for the entirety of its electricity supply. The province also reports higher levels of investor confidence – with a record-breaking R5 billion injected into the province’s economy between April and June 2021 according to Wesgro, off the back of several major real estate investments.
However, despite these two factors, the Western Cape’s residential property vacancy rate remains 2 points higher than Gauteng’s, at 14.4% vacancy versus 12.4% according to a recent TPN survey. This may be due to the province’s oversupply of accommodation aimed at tourists and digital nomads, a sector hit hard by the pandemic, rather than political influence.
When it comes to commercial property the municipality-linked investor confidence and service delivery plays a large role in reducing commercial vacancy rates. Around 16% of office space in Cape Town’s CBD remained vacant in the second quarter of 2021, compared to more than 20% of offices in Sandton – Gauteng’s biggest business node.
Functioning municipality key factor in property value
“Be it commercial or residential – if your property is in an area with a dysfunctional municipality, the value is bound to depreciate as investors lose confidence and tenants look elsewhere when looking to buy or rent. It is essential that voters understand the link between their local government representative and the quality of municipality they will be able to lead and the impact it will have on their property value before making their mark,” he concludes.
