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NEWS24 OPINION | Polycrisis calls for a switch in investment strategy in 2023

After an annus horribilis of epic proportions, what can we expect from 2023? The news isn’t great, writes Greg Dart.

After two awful years of a world turned upside down by Covid-19, 2022 was supposed to be our big comeback.

Instead, we got record global inflation, a new war and worldwide catastrophe-related losses in the region of US$270 billion, according to reinsurance giant Swiss Re.

Closer to home, more than 200 days of loadshedding hammered our already ravaged economy, repo rate hikes were brutal and headlines dominated by endless political scandals did little to inspire investor confidence.

So, after an annus horribilis of such epic proportions, what can we expect from 2023?

The news isn’t great.

Globally, the International Monetary Fund has cut its 2023 world economic growth forecast to 2.7% from 2.9%, but financial institutions are even less optimistic with investment bank JP Morgan’s prediction at a sluggish expansion of 1.6%.

The South African outlook is even less favourable, with further cuts expected to the official growth forecast of around 1.9%. In late December, Fitch predicted a 1.1% economic growth rate for the country.

It’s my view as the new year dawns that 2023’s investment strategy watchword should be ‘polycrisis’; a term increasingly used to describe how global crises are interconnected; entwining and worsening one another.

A more disturbing but accurate definition comes from the Cascade Institute, a non-profit think tank at Royal Roads University that has a research programme devoted to the subject. It says: “A … polycrisis occurs when crises in multiple global systems become entangled in ways that significantly degrade humanity’s prospects.”

Remember all the unforeseen consequences of the pandemic across social, judicial, technological, economic and political spheres? Covid created an unprecedented global polycrisis, made infinitely worse when Russia invaded the Ukraine.

Pervasive global economic uncertainty means investors face a challenging year, and now is the time to ask: “Can I afford to lose?” The only rational answer is, of course, “no” so it therefore follows that wealth creation strategies must adapt to the new paradigm.

One way to ensure stable growth in the current market volatility is to switch from short-term to long-term portfolio investing.

An example is real estate, which is by a wide margin the largest asset class in the world. Global real estate investment is valued at close to US$360 trillion, with the lion’s share ($258 trillion) invested in residential property.

In South Africa, the total value of real estate investment is around R6 trillion.

And despite a cumulative interest rate rise of 350 basis points since November 2021, last year South Africa’s real estate market stood out as the one vibrant investment sector in an otherwise flat economic landscape.

Why? Because property is widely regarded as a safe harbour investment.

A Lightstone report released in December showed the investor appetite for this asset class in South Africa. The report revealed that during 2022:

  • 294 240 residential properties worth R303 billion changed hands;
  • 3 271 commercial property transfers worth R70 billion were registered;
  • 2 817 industrial properties valued at R15.5 billion were sold;
  • 5 159 retail properties sold for R13.3 billion;
  • 2 781 office buildings valued at R8 billion were sold; and
  • 507 mixed commercial development deeds worth R2.8 billion were registered.

Another notable trend highlighted in the Lightstone report was that Western Cape semigration figures were still highest. In fact, last year relocations to the Western Cape totalled more than semigration to Gauteng and KZN combined.

Besides quality-of-life considerations, a massive determining factor for the ongoing Cape Town influx is the city’s supply of electricity. By procuring alternative supply sources and keeping load shedding lower than Eskom, Cape Town’s commercial sector has been holding its own and the regional economy is reaping the rewards. Lightstone’s 2022 commercial data was in line with the outcome of our 2022 auctions, where corporates in particular were willing to spend for the right investment properties. 

At R21.4 million, commercial properties commanded the highest average individual prices of all the real estate asset classes in South Africa, followed by industrial sites that sold for an average of R5.5 million. In contrast, residential properties only averaged R1 million per sale – all prices that should guide investors towards the most lucrative acquisitions in the coming year. Regardless of where investors put their money in the real estate market in 2023, though, there’s a fair chance of realising profit in the long-term.

This global polycrisis is probably going to get worse before it gets better, and we can’t even begin to guess how the fallout will affect us going forward. The best we can do is drop an informed investment anchor and patiently ride out the storm. 

Greg Dart has decades of senior management experience in multinational business development and strategic asset management across European, African and Middle Eastern markets. For the past eight years he has specialised in high-value real estate investment at High Street Auctions, where he serves as an Executive Director.

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