Adapting to the New Normal – The
All key players in the commercial property space are important. A certain level of humanity and reasonableness is expected of them. One property professional put it so poignantly when he said all the key parties should have the attitude of, “let’s share i
If there is one thing that landlords and tenants of commercial property have their views converging on, it is the fact that this period is one of the most distressing times in human history. Despite the fact that a lot of money has been pumped into research, there is just no hope on the horizon.
True, over one 100 reputable outfits are working day and night to find either a vaccine or an antiretroviral drug to contend with the novel coronavirus. Just in case you are wondering why it’s called corona, it is because of the crown-like spikes visible on its surface.
However professionals in the fields of epidemiology and vaccinology are not giving us reason to be jubilant. For instance, Mark Jit, a Professor of Vaccine Epidemiology at the London’s School of Hygiene and Tropical Medicine said, “the normal time for development of vaccine from the time of initial discovery to releasing it to population, is 10 to 20 years.”
Despite this, many laymen have been talking about September or October 2020. Perhaps this level of heightened optimism has been fuelled by the fact that media reports have advised that Oxford University has already started the process of testing a vaccine for COVID-19. The truth is, it might take much longer than we wish for us to be out of the woods.
Surely, worldwide, some people believe that we will have a vaccine before the turn of the year. Call it dumb hope or whatever, but they choose to call it optimism. Notwithstanding that, all appreciate that a scientific process would not be super expedited just to impress the global community and overwhelmed political leaders. Some of whom their reelection this year hinges on their performance in dealing with the trauma brought about by the virus.
Experience teaches us that success rate for vaccine trials is very low, in some cases as low as 10%, and that is on the higher end of the optimism spectrum. Add to that the fact that no vaccine has ever been approved for previous strains of coronaviruses. Just in case you are hoping that you will get away unscathed by COVID-19, let me warn you, scientists say that most of us will fall victim to at least one strain of coronavirus in our life. How about that! Before you lose yourself into a frenzy of panic, don’t worry, some strains are curable, like the common cold widely called flu in Botswana.
It is understandable that we are all craving to return to the old normal that we had deceived ourselves into thinking we had some eternal right to. We can’t wait to revive friendships, to shake hands of loved ones, to squeeze them and kiss them at will, to ‘la bise’ them and to enjoy their company unlimited by the government mandated lockdown restrictions on public gatherings. Some of us are dying for that scrumptious meal at our favourite restaurant. And the travel enthusiasts amongst us would like to board a plane, and I mean a huge plane, and enjoy looking down on the sprawling sparkling blue monolithic of some ocean! Hello! The new order is upon us. The sooner we make peace with that the better. All we need to do is to be flexible and adapt to the socalled new normal.
Life does not stop though. As the clock ticks away unrelentlessly, we need to carry on doing what is important to us. For some of us, management of commercial property is close to our hearts. And we are wondering what it is that we can do to optimise the fruits of our labour. We appreciate that real estate, the wealth spinner for property developers and investors is under harrowing assault. The coronavirus has hit property investors where it hurts most, on two of their most important limbs, income and balance sheet. Countries have also been hit, with GDP contractions projected for emerging, developing and developed economies across the globe, including China.
From a property perspective, a number of important players are now sitting on the grandstand, and each one of them has to find a way of assisting in crafting a way to surviving the effects of coronavirus. Amongst these are the government, municipalities, financial institutions, property practitioners, landlords and tenants. It is critical for each one of these parties to recognise their role in ushering a semblance of normalcy to a rather abnormal era. For this to happen, all these players have to acknowledge that they are part of a troubled community, and they need to support each other in order to survive these trying times and inch their way to recovery.
An unfortunate view would be for one or more of these players to bury their head in the sand and callously push their agenda with very little or no regard to the rest of the players. The overarching goal should be to stimulate consumption, revive investment and heal the economy. We are now going to discuss how the various players can come to the party and play their role effectively. To some extent, all the players discussed are already playing their role as articulated below.
The government and municipalities
The government is best placed to drive the agenda for survival and recovery. A menu of options available to the government is worthy of consideration. In periods like this, one of the first casualties is normally consumption. Consumption has to be stimulated in several ways, key amongst which is to come up with well-thoughtout and sustainable fiscal stimulus packages. Riding on its central bank, the government has to improve liquidity through quantitative easing mechanisms and even pursue reduction in interest rates.
It also has to play a leading role in engaging finance houses with a view to pushing for a mortgage moratorium. This will help landlords in dealing with the brutal consequences of interruption on their income stream. Perhaps another moratorium that would be welcome would target evictions and litigations that are likely to be occasioned by failure to pay full or partial rental.
We have long made peace with the fact the government will lose revenue from four key sources; reduced uptake of diamonds, tourism, SACU and the private sector (owing to reduced taxable profits). In view of all this, it is a tall order to demand that the government should waive some taxes for a time. This might not be easy primarily due to the fact that the Government partly relies on taxes to meet its important obligations. Now, a fiscal deficit is beckoning. This means that the government has to find ways of lessening the burden on the fiscus while leading in driving economic activity and growth. In this regard, hard as it might be, some element of tax relief would be welcome.
In the wider interest of reviving the economy, and by extension helping landlords and tenants to get back on their feet, it would be necessary to review all NDP sanctioned projects for this financial year, and shelve some of the infrastructure projects. This is all the more important in view of the fact that securing external funding for implementing infrastructural projects under COVID19 conditions would be a herculean task.
Add to that the recent decision by the European Union (EU) to add Botswana to the list of countries posing a high risk to money laundering and funding of terrorism. Much as some may view EU’s decision to be unjustifiable, pedantry and perhaps even irrational, for now, the bottom line is, it is what it is. While at a political level the government is expected to devise a well-crafted and effective lobbying strategy for engaging the EU, technocrats have to go back to the drawing board and diligently reprioritise projects. This would ordinarily mean that a huge chunk of funding saved from putting some projects on abeyance could be channelled toward stabilising the country’s liquidity position, stimulating economic activity and funding all necessary health costs.
While it’s flattering to have foreign reserves, this might be the moment to consider drawing from those reserves with a view to breathing life into the national economy. In any case, reduced global economic activity means that it is possible to see these reserves shrinking in value in the next few months. Of course the extent to which a drawdown on reserves can be implemented would largely depend on contractually binding terms for investing such funds.
The government also has to approach external organisations for help. For instance, of the US$1 trillion mobilised by International Monetary Fund (IMF) with a view to helping countries deal with the effect of COVID-19, US$50 billion has been reserved for assisting emerging and developing economies. That amount is a miniscule fraction of what all these economies need. For instance, it is estimated that the total amount required by Africa alone, just for curbing the spread of the virus and meeting the cost of all medical treatments hovers around US$130 billion. Obviously this means that proactive countries are already busy working on convincing business cases for them to have a bite on IMF’s pie.
The IMF is not a philanthropic outfit, and will not offer African countries this money on a per capita basis. Each country has to court and convince the IMF. We believe that our technocrats are already working on this. This is all the more important given the drastic drop on the Treasury’s coffers likely to be occasioned by restrictions on international travel. It had been envisaged that tourism would contribute over 10% to the country’s GDP in 2020. It is now public knowledge that the current picture is far from rosy.
Leases would normally prescribe that landlords have to pay property taxes. These are rates that are payable to various municipalities. Waiving of these taxes would be in order. Or at the very least, municipalities in conjunction with the Government should consider a dispensation for a reasonable concession. Although in the short term, property values would not normally tumble on the back of opportunistic disruptors like pandemics, in the medium to long term, sustained cessation of rental revenue could impair capital