Some developers saw recession coming

Although the worst effects of the recession are now tailing off, property development and construction companies still have a long hard road to walk before anything like “normal” trading conditions are seen again, says Paul Henry, Managing Director of Rawson Developers and Rawson Construction.

“It would shock many people,” said Henry, “to know just how many proposed developments have been put on hold over the last few years whilst developers have waited for an upturn.

“Regrettably, in the first quarter of this year we saw a great many companies, large and small, go into liquidation, in some cases taking the professionals and building supply companies with them. They were simply unable to ride out the tough period.

“While it may be true that some of these had grown too big too fast, many were quite reputable small operations which cannot really be blamed for not foreseeing the downturn.”

One of the factors which led to over-confidence in the development sector, said Henry, was the expectation that the World Cup hype would lead to boom conditions in which almost any property would sell or rent at prices not seen before in Cape Town.

“This expectation was, of course, not realistic and was downplayed from an early stage by both our chairman, Bill Rawson, and Tony Clarke, MD of Rawson Properties. The take-up has simply not been there.”

Astute developers, said Henry, did read the signs, saw what was coming, held back and waited for “the cherries to fall from the trees”.

“The recession has not been easy,” said Henry, “but it has helped some of us to pick up development opportunities at prices that are a great deal more reasonable than they were in 2008/early 2009.”

On the other hand, Henry added, there are still some landowners who continue to hold out for “ridiculous” prices - and it may take another six to 12 months to convince them that they are out of touch with the market.

“This lack of realism,” said Henry, “is often due to developers employing poorly equipped people to value their land and in some cases they are setting their prices without any consultation at all.”

The banks, he added, have been among those hardest hit by “amateur” developers and land dealers and, as a result, their credit committees are now demanding increased security and guarantees and track records of successful on time delivery. Before funding is advanced, most developers have now, too, to achieve a 90% sell out on their units.

The Rawson Developers’ team, added Henry, now look at some 20 or more development opportunities each month. On these they compile a detailed analysis and due diligence and feasibility studies. In 95% of the opportunities presented to them, said Henry, they decide that there is no possibility of going ahead.

“All our experience over the last 16 years shows that this sort of caution is absolutely essential,” said Henry. “It has almost invariably been the inability to do a property feasibility study and/or the over-pricing of the end product that has caused most of the failures of recent months.”

This intensive screening process might be thought to have led to a temporary close down of Rawson projects but, said Henry, there have, as indicated above, been some opportunities worth following up. At Rawson Developers the company now has four major projects in the Rondebosch area on the go (their Rondebosch Oaks, Rivers Edge and Belmont Road projects have already been publicized) and they have three or four in the pipeline.

“All this could be good news for investors and tenants who continue to see Rondebosch as one of the best Cape Town areas in which to live and invest,” said Henry.

Article from: www.rawson-developers.co.za