Prop­erty sec­tor looks to state projects amid eco­nomic slump

The Star Early Edition - - COMMERCIAL PROPERTY FOCUS - Staff Re­porter

IN­FRA­STRUC­TURE de­vel­op­ment is key to support the prop­erty in­dus­try given South Africa’s weak eco­nomic growth, ac­cord­ing to Robin Lock­hart-Ross, who has been re­cently ap­pointed the man­ag­ing ex­ec­u­tive at Ned­bank Cor­po­rate Prop­erty Fi­nance.

Lock­hart-Ross said growth in the com­mer­cial prop­erty in­dus­try over the next few years con­tin­ued to be de­pen­dent on the gov­ern­ment’s re­dress of crit­i­cal in­fra­struc­ture back­logs and ca­pac­ity con­straints to off­set the damp­en­ing ef­fects of low eco­nomic growth.

Apart from elec­tric­ity sup­ply short­ages, more re­cent re­ports pointed to loom­ing wa­ter sup­ply is­sues that could fur­ther in­hibit prop­erty de­vel­op­ment, he said.

But Lock­hart-Ross said at mu­nic­i­pal gov­ern­ment level the height­ened fo­cus on and in­vest­ment in ex­pand­ing and im­prov­ing trans­port in­fra­struc­ture and pro­mot­ing mixed-use ac­tiv­ity nodes along ma­jor trans­port cor­ri­dors and around key trans­port in­ter­changes boded well for com­mer­cial prop­erty de­vel­op­ment within met­ro­pol­i­tan ar­eas.

“A greater de­gree of col­lab­o­ra­tion and co-or­di­na­tion is be­com­ing ev­i­dent be­tween the var­i­ous cen­tral, provin­cial and mu­nic­i­pal gov­ern­ment de­part­ments and agen­cies, which all play roles in the ap­proval, pro­vi­sion and fund­ing of in­fra­struc­ture that en­ables and fa­cil­i­tates pri­vate sec­tor driven prop­erty de­vel­op­ments,” he said.

Lock­hart-Ross added that de­spite in­fra­struc­ture back­logs and ca­pac­ity con­straints at na­tional and mu­nic­i­pal gov­ern­ment lev­els, the com­mer­cial prop­erty mar­ket had proven re­mark­ably re­silient in re­cent years, which was a trend he ex­pected to con­tinue in the fore­see­able fu­ture.

He said although growth in the prop­erty sec­tor re­mained pri­mar­ily a func­tion of gross do­mes­tic prod­uct growth, which sug­gested that muted eco­nomic ac­tiv­ity com­bined with ris­ing in­ter­est rates could slow down the mar­ket next year, this had been an ex­cel­lent year for Ned­bank’s Cor­po­rate Prop­erty Fi­nance di­vi­sion. The unit holds the largest mar­ket share in the lo­cal com­mer­cial prop­erty fi­nance in­dus­try.

“We ac­tu­ally con­clude some of our best prop­erty fi­nance trans­ac­tions when the econ­omy is sub­dued,” he said. “Fi­nan­cial fea­si­bil­ity of a project is more crit­i­cal amid heavy com­pe­ti­tion in tight eco­nomic con­di­tions, and this is per­haps why de­vel­op­ers brav­ing the lean mar­ket reap great re­sults when the econ­omy re­cov­ers.”

Growth in the com­mer­cial prop­erty in­dus­try… con­tin­ues to be de­pen­dent on the gov­ern­ment’s re­dress of in­fra­struc­ture back­logs and ca­pac­ity con­straints.

Lock­hart-Ross said solid growth in loan de­mand was be­ing seen in the re­tail prop­erty sec­tor and was be­ing driven largely by peri-ur­ban and ru­ral shop­ping cen­tre de­vel­op­ments cater­ing for a grow­ing emerg­ing mid­dle class pop­u­la­tion.

“Whereas usu­ally only one or two ma­jor shop­ping cen­tres break ground on South African soil an­nu­ally, the past three years have seen a higher level of ac­tiv­ity, with sev­eral large de­vel­op­ments re­cently com­pleted and in progress and sev­eral more projects be­ing planned,” he said.

Lock­hart-Ross said banks were far more con­sid­ered now in their lend­ing cri­te­ria given the lessons of re­cent his­tory.

“The bulk of de­faulted loans re­main stalled res­i­den­tial de­vel­op­ments that will have to be traded out over an ex­tended pe­riod of time. The crit­i­cal is­sue go­ing for­ward is whether banks will opt to push for higher growth in their loan books at a time when it is in­ap­pro­pri­ate to do so.

“Our ethos at Ned­bank Cor­po­rate Prop­erty Fi­nance is to avoid chas­ing mar­ket share growth in a ris­ing in­ter­est rate cy­cle and rather to follow a sus­tain­able ap­proach that bal­ances risk and re­ward through the eco­nomic cy­cle. This is a phi­los­o­phy that we con­tinue to ap­ply,” he said.

Lock­hart-Ross added that the per­ceived riskier en­vi­ron­ment, cou­pled with the new Basel bank­ing reg­u­la­tions, had also led to a trend within the com­mer­cial prop­erty fi­nance space to­wards shorter loan pe­ri­ods.

“Typ­i­cally a loan used to be for a 10-year pe­riod. How­ever, the banks’ cost of cap­i­tal and liq­uid­ity has in­creased, so banks have be­gun charg­ing liq­uid­ity pre­mi­ums, which vary ac­cord­ing to the term of a loan and has prompted the move to­wards short­en­ing of loan terms,” he said.

Lock­hart-Ross said Ned­bank Cor­po­rate Prop­erty Fi­nance had passed an im­por­tant mile­stone this year in reach­ing a loan book of R100 bil­lion, which was a long stand­ing goal for the di­vi­sion fol­low­ing the mar­ket down­turn that be­gan in 2008/9. He added that it was par­tic­u­larly grat­i­fy­ing this tar­get was achieved a year ahead of sched­ule.

He said although there con­tin­ued to be at­trac­tive fund­ing op­por­tu­ni­ties lo­cally, there was also a clear in­tent to di­ver­sify into Africa over the next few years in light of the cur­rent eco­nomic en­vi­ron­ment and Ned­bank’s mar­ket lead­ing po­si­tion.

“This will be achieved through a two-pronged ap­proach of fol­low­ing our South African clients into se­lected ju­ris­dic­tions, as well as lever­ag­ing the ex­ist­ing pres­ence of Ned­bank’s African sub­sidiaries, plus its al­liances with Ecobank and Banco Unco to pro­vide a pre­mium ser­vice to our clients across sub­Sa­ha­ran Africa,” he said.

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