OBG talks to Samuel Ogbu, Chief Executive, Liberty Group Properties

Interview: Samuel Ogbu

How can the government encourage growth in the country’s first-home market?

SAMUEL OGBU: The price points for entry into the housing market are not unreasonable when considering average incomes. The big issue in housing is the so-called gap market, which deals with employed individuals who do not qualify for subsidised housing programmes, but also do not earn enough to qualify for a bank loan. It is not the government’s responsibility to provide financing for first homes. However, providing loan guarantees or assisting banks in providing lower interest rates can assist the gap market as it is the cost of capital, and not the cost of the asset, which becomes supported.

The other, more important area where government plays a role is on the regulatory side, as the red tape that often surrounds approval processes needs to be streamlined. Finally, I do not believe home ownership is the sole solution for the first homes problem, as a thriving rental or shared-ownership market supported by institutional investment would be less costly.

Do you see indications of recovery in the second-home and buy-to-let markets?

OGBU: Five years ago, there were lots of easy financing options whereby people were not directly buying an asset, but putting down money to purchase an obligation to take on debt with no guarantee of a tenant who could pay enough in rent to cover the mortgage costs. As a result, a lot of people took a hit and there is little new demand for buying to rent.

There is a need to move away from the ideological presumption that the only way to have a home is to own it. In places like Germany and the Netherlands it is quite common for people to rent their homes and financial institutions encourage this.

In what ways are the needs of tenants changing when it comes to commercial office space?

OGBU: There is a move towards creating a more friendly and efficient use of space in order to manage costs and create healthier working environments. With costs being squeezed, corporations are very concerned about efficiency and space utilisation.

Accessibility is also an issue as congestion becomes a concern. People want to live closer to their place of work or places easy to reach with public transport. So, we are increasingly seeing the melding of residential and office areas and more demand for office space in locations near transportation lines.

While South Africa is for the most part not skyscraper oriented, the densification and demand for some prime locations will lead to more office blocks and towers built in the more sought after areas.

What are the primary factors driving occupancy and footfall for retail centres?

OGBU: Results have been patchy since some retailers were more insulated from the global economic slowdown than others. Retailers known for value have done well, as have some premium retailers. Those with middle-of-the-road strategies have been hit badly. The majority of the population does not have easy access to private transportation and we need to create facilities that are easier for them to access. There is a realisation that for much of the population, transportation costs are substantial, so retail centres easily accessible by public transport have lots of potential.

What emerging trends have you noticed within the hospitality segment in recent years?

OGBU: The hotel sector has had a tough time recently. Occupancies and revenue per room have fallen across the board, with five-stars now competing and pricing themselves in the three-star bracket and throwing in freebies to improve value. Many hotels, especially those built for the World Cup, are losing money and exiting the market. The older hotels have written off costs over time and can ride out the conditions better. The level of price competition is not sustainable. I am surprised it has gone on so long without more casualties.