As the end of a particularly challenging 2012 approaches, stakeholders and participants in South Africa’s commercial and industrial property sectors should probably be checking that the hatches are still firmly battened down in preparation for an equally challenging 2013.
The likelihood of continued slow growth across South Africa’s various property industries will mean that finding good deals against which to lend will remain a key challenge for property finance houses in the coming year.
This can present a significant risk for those that take their eyes off the longer-term nature of the industry.
During protracted economic down cycles, a main risk facing many property businesses – whether involved in finance or development – is giving in to the temptation of chasing after risky deals that can so often come along disguised as opportunities.
Which is why, in this industry, challenging times typically highlight the importance of proven experience, broad market knowledge, and a long-term view.
As the head of the country’s leading property finance organisations that consistently holds close to 40 percent of South Africa’s commercial and industrial property market, I speak from experience.
The success of Nedbank Corporate Property Finance, as well as its sustainability through all market cycles, to a combination of experienced and insightful people, a long-term lending philosophy that transforms clients into business partners, and a commitment to continuous self examination and fine tuning of business processes.
Thanks, primarily, to this long-term, relationship-driven approach, Nedbank Corporate Property Finance has managed to buck the economic trend for much of 2012, disbursing more than R15 billion in finance year-to-date – much of it in support of some of the leading property developments that have taken place across the country during that period.
This continued success, even in the face of apparently overwhelming economic challenges, underpins my confidence that, while most areas of South Africa’s commercial and industrial property industries are likely to continue marking time for the foreseeable future, there will continue to be opportunities for those developers and financiers that know where to look for them.
There will be continued appetite for listed property funds as a key focus for stakeholders who want to maintain a measure of momentum while waiting for the cycle to eventually turn upwards.
Despite the fact that there are definitely fewer cranes dotting most of South Africa’s city skylines, property stocks are, and probably always will be, a fairly reliable means of investment preservation and steady, albeit marginal, growth.
This is because they offer access to a diverse range of established properties instead of the single building exposure and volatility risk of direct property ownership or investment.
In 2013, we are likely to see continued growth in the number of green buildings in the future, particularly given their rising appeal for sustainability-focused tenants and the potential they offer to deliver quick returns on investment via savings on increasingly costly utilities.
“While it’s unlikely that green buildings will be a game changer on the South African property markets anytime soon, environmentally-conscious building design, construction and management makes excellent economic sense.
Since green construction processes typically only cost around 5 to 10 percent more than traditional methods - while delivering marked longer-term savings - there is every likelihood that we will see the number of green buildings in South Africa continue to rise steadily in the years to come.
For the immediate future, however, it seems unlikely that anything other than a sustained turnaround in the economic fortunes of South Africa and the rest of the world will prompt a return to significant and sustainable growth for this country’s property markets.
Until then, the best approach for its participants appears to be to sit tight, hone your skills, and only act on those carefully considered opportunities you know will strengthen your business over time. - Frank Berkeley
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