It would seem there is a growing trend in the USA and SA for commercial property investors to increasingly opt to pay cash for properties.

Property developers are increasingly developing for cash, later approaching the banks for finance. This, he says is undoubtedly happening more and more as banks are reluctant to take risks and developers are seeing opportunities that just cannot be missed.

According to Org Geldenhuys, managing director of Abacus Divisions, this trend is gaining momentum due to the recalcitrant attitudes of local banks to lend money as the credit crunch continues to linger.

Since late last year and increasing during 2011, we have seen more than 50 percent of our deals being concluded by clients making cash payments, he says.

He explains that this seems to be an increasing trend as investors are forced to find alternative funding sources, or to raise the cash as banks are just too reluctant to lend money, erring seemingly excessively on the side of caution.

This trend also seems to be playing out in the USA, where USA banks – following that country’s disastrous sub-prime mortgage crisis are even more reluctant than South African banks to loan money.

Lori Nery, owner of Coastal Realty in New Bedford (USA), says that out-of-town investors have been inquiring about buying properties in the struggling coastal city where property prices have been plummeting.

Nery says now is the time to buy but banks just aren’t lending money and nearly half of his company’s sales this year have been cash only.

"I think the word is out we are a good bargain," Nery says.

Geldenhuys points out that this trend towards paying cash is not good for the commercial property market because not all investors have access to cash.

“I get the feeling that banks are being excessively cautious and this could have a serious backlash in both the commercial and residential property markets,” he says.

Property developers are increasingly developing for cash, later approaching the banks for finance.

This, he says is undoubtedly happening more and more as banks are reluctant to take risks and developers are seeing opportunities that just cannot be missed.

“These days banks only finance on the back of a solid tenant signing a lease agreement of about three to five years, with decent escalations.”

He says over the past two years at one of their developments, Route 21 in Pretoria, almost all the developments made on risk were developed using cash and almost all have found tenants.

Developers are richly rewarded for the risks taken, with leases up to five years and a 10 percent escalation in rates.

Tenants also like new buildings and although markets are tough we see people moving to improve the company’s image as not all companies are cash-strapped.

There are pockets of excellence in the tenant and commercial property market,” says Geldenhuys.

He believes that wise investors or developers with cash can cherry pick good investments provided they buy and develop in sought after areas, such as Centurion’s newest development node.

He adds that many developers with cash in hand are looking to plough the excess cash into developments as interests received on those cash balances are dismal. – Denise Mhlanga

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