The notoriously interest-rate sensitive property market is taking an inflation beating.

Bruce Whitfield:
Let’s talk to Rael Levitt, who is the chief executive of the Alliance Group and Rael, we know that the current inflation environment has got to be bad for interest rates and we know it is also very negative on residential property, maybe we will talk about that a bit later, but also the industrial and commercial property sectors what sort of pressure are those coming under now?

Rael Levitt:
The industrial and commercial properties are yield based so it really tracks interest rates and you know when interest rates go up yields go up as well and of course values drop but you know the beauty in South Africa is because the loan to value that means what the banks have lent from industrial and commercial property is round about 70 to 80 percent that means that there is equity in those properties so really in summary the industrial and commercial property market is relatively good.

Bruce Whitfield:
But one looks at the performance of the shares in the listed property sector, you know my market commentator Rudi van der Merwe said finally investors in these sectors are beginning to realise that they are interest rate sensitive and here we have got those sectors coming under quite a lot of pressure at the moment.

Rael Levitt:
Sure as I said they are completely interest-rate sensitive and when interest rates go up values drop it is as simple as that so you know when you're looking at the listed property sector I mean there is a dose of reality which is coming into that market and remember it has run fast and hard the last couple of years so there is certain reality but looking at the underlying, you know if for the man in the street, if you own an industrial commercial property values have definitely dropped in line with interest rate rises and potential rises but it is still a market which is certainly nowhere near what is happening in the residential property market.

Bruce Whitfield:
When will be a good time to buy commercial property given the economic environment that we are in? It’s an SMS that has come through to me this evening.

Rael Levitt:
Well you know it is the old adage in property in fact when everybody is buying you should be selling and when everybody is selling you should be buying so I actually think that it is a pretty good time now. Investor sentiment it certainly not great at the moment, values have come in line, and we already see on the auction floors great value to be had so it actually is a great time to be buying right now.

Bruce Whitfield:
Virtually every window I look out of from our Sandton offices I see cranes on the horizon, they are all over the place, there is building work going on 100 m from here like I have never seen before. That is all continuing despite this downturn though.

Rael Levitt:
It is indeed and in fact you know when we look at it one must be very careful just to look at the commercial market across all different sectors. In fact the a grade office space market and particularly around Sandton in a grade nodes is probably the best part of the market. There is still large demand there is still people looking for rental space in a grade office space so in fact when you look around Sandton, you look around all the a grade nodes around South Africa in fact it is probably the strongest part of the entire property market.

Bruce Whitfield:
So there is absolutely no problem in that market but when you talk about commercial property coming under pressure, you are talking about the manufacturing sector you are talking about the industrial sort of property?

Rael Levitt:
Well we are finding that the problem area which is showing the largest weakness and when I mean weakness it is certainly again nowhere near residential it is probably small retail shops, you know the retail sector coming under large pressure because of interest rates, the interest-rate environment, but the market which definitely seems to be taking the most pressure is the retail property market.

Bruce Whitfield:
And just look at retail results at the moment and it is hardly surprising but there are still lots of plans for a lot of these retailers to roll out more and more stores I mean they are pursuing that. Mr Price came out with a statement yesterday saying exactly that so there is almost contrasting messages coming through there.

Rael Levitt: Well surely I mean you know obviously you have got some great retailers and some not so great retailers. I mean retailers like a grade tenants like Mr Price are in a good position and the owners of those companies are in a good position.

Bruce Whitfield:
Rael Levitt thanks for talking to us the chief executive of the Alliance Group with some views on what is going on in the broader property market.