July 16, 07:00

Investors in South Africa actively acquire undeveloped plots amid land development boom

A boom in land development is observed in South Africa, and investors, developers, institutions, and private buyers are striving to acquire vacant plots at current prices to secure future opportunities.

The Significance of Development Land

According to Greg Dart, director of The High Street Auction Co., well-located land is becoming extremely sought after. He notes that development land is one of the few asset types where value is created, rather than simply acquired. These plots represent a pure opportunity for forming new industrial parks, logistics centers, residential complexes, mixed-use zones, or commercial properties.

Meanwhile, Tuesday saw an announcement from the Development Bank of Southern Africa (DBSA). The bank reported that through support for the Free State University student accommodation program, 520 student places were provided in Bloemfontein and Qwaqwa with investments totaling 119.6 million rand. This initiative has contributed to expanding access to higher education and creating a favorable learning environment.

DBSA indicated that the positive impact extends beyond mere infrastructure: students save an average of 534 rand monthly on transport costs and recover about 8 hours and 40 minutes that would otherwise be spent commuting. Furthermore, safe, purpose-built housing contributes to improved academic performance, well-being, and overall student success. DBSA representatives stated: 'At DBSA, we invest in infrastructure that creates opportunities because Africa's prosperity starts with investing in people.'

Reasons for High Bids on Vacant Plots

In parallel, WMPB Land Surveyors published a post on LinkedIn on Wednesday explaining that municipalities often set higher rates on vacant plots due to a combination of financial, planning, and political reasons. Although the approach varies by municipality, the main motives include:

Stimulating development: Higher rates discourage owners from leaving serviced plots empty for long periods, as municipalities are interested in developing land for housing, business, or other productive uses that support economic growth.
Recouping infrastructure costs: Even if a plot remains vacant, the municipality may have already provided roads, water, sewage, stormwater, and electrical infrastructure, the maintenance of which helps cover costs through rates.
Reducing land speculation: High rates encourage owners to either develop the land or sell it to someone willing to do so, instead of holding it for years awaiting value appreciation.
Promoting efficient land use: Inaction on serviced urban plots can lead to urban sprawl, so encouraging infill development ensures better use of existing infrastructure.
Municipal revenue: Property rates are an important source of income for municipalities, used to fund services such as roads, parks, libraries, waste collection, and public safety.

According to WMPB Land Surveyors, in South Africa, the Municipal Rates Act 2004 (Act 6 of 2004) grants municipalities the right to establish various categories of rates (e.g., residential, commercial, agricultural, vacant) and charge different rates for each category while adhering to their Rates Policy and the Act. This allows municipalities to legally charge a higher fee for vacant land compared to developed land, provided it is justified in the adopted policy.

Owners' Rights to Contest Rates

The consulting firm added that owners have the right to contest increased rates on vacant plots if they believe their property has been misclassified or the rate is unjustified. To do this, they can review the municipality's annual Policy and Tariffs, check the property category in the municipal valuation roll, and lodge an objection during the roll objection period or appeal, if permitted.

iol.co.zaJuly 3, 17:00

Strong fundamentals support the recovery of South African commercial real estate market

South Africa's commercial real estate has shown a steady recovery, achieving four consecutive years of positive capital growth despite pandemic-induced uncertainty. This success points to a more constructive macroeconomic backdrop and improved sector fundamentals.

Results for the Last Year

According to the MSCI South Africa Real Estate Index, sponsored by Absa, the sector delivered a total return of 12% over the 12 months ending December 2025. This marks the best result since 2018. Yield stood at 8.5%, exceeding the 10-year average, while capital growth brought property values back to pre-decade levels.

For the second consecutive year, the MSCI South Africa Real Estate Index achieved the highest overall return among components of the global MSCI index in local currency. The improvement is evident not just in one part of the market, but across many sectors.

Retail and Industrial Sector Dynamics

The retail sector, which accounts for 61% of the index by value, generated a total return of 12.7% in 2025, up from 12% the previous year. Retail in settlements and rural areas also performed well, with returns of 17% and 17.8% respectively. These results were achieved amid slowing inflation and falling interest rates, which supported consumer spending.

According to the SAPOA Retail Trends Report for Q4 2025, trade density growth was 3.9% year-on-year. Although this figure was lower than at the beginning of the year, it matched inflation, and tenant demand for quality retail space remained high. Vacancy rates improved to 4.5%, and tenant accessibility, measured by gross rent-to-sales ratio, remained stable at 6.8%.

In the industrial sector, activity throughout 2025 was sustained by demand for logistics properties, tenant-initiated developments, and low vacancy rates. This sector, representing 11% of the MSCI index, once again provided the highest overall return among core property classes—13.4%. Although capital growth slowed compared to 2024, rental yield remained stable. Industry remains the sector where the supply-demand balance appears most favorable, as available space is constrained by low vacancies and rents continue to rise.

Changes in the Office Segment

Office real estate has long been considered a sector facing significant structural challenges, making its recent performance a notable market event. The sector, comprising 18% of the MSCI index, showed a total return of 9.7% in 2025 compared to 9.4% the previous year, with both rental yield and capital growth increasing year-on-year. The most encouraging development was the improvement in vacancy conditions.

Data from the SAPOA Office Vacancy Report for Q4 2025 shows that the national office vacancy rate decreased from 15.8% in 2024 to 12.8% in 2025. However, the office sector's recovery highlights an important feature of the current property cycle: performance is becoming increasingly differentiated. Coastal markets, such as Cape Town and Umhlanga, continue to outperform Johannesburg metro, and modern, well-located areas are attracting demand that older properties in the same nodes cannot replicate.

Conclusions on Fundamentals

These results indicate that the recent sector performance is supported by solid fundamentals: retail benefits from improving consumer conditions, industry benefits from strong structural demand, and office vacancy is moving in the right direction. Nevertheless, this does not eliminate the challenges facing the sector, nor does it mean all property assets will perform equally well. It only suggests that the foundations supporting commercial real estate have become more constructive than they were a few years ago.

Ongoing geopolitical tensions are expected to create inflationary pressure and uncertainty regarding the future trajectory of interest rates both locally and globally. These factors impact economic growth, and consequently, tenants, landlords, and capital providers. However, for now, commercial real estate is in a stronger position to absorb these pressures. After four consecutive years of capital growth and the highest overall return since 2018, the discussion has shifted from whether a recovery is possible to its sustainability.