Today's Cape Property Developers batting on a very difficult wicket
“In the past,” said Henry, “the developer bought a tract of land, or an old building, attended to the zoning requirements, and then went to the bank for finance. Depending on his track record and reputation, the bank would then advance up to 100% of the sum needed and would probably stipulate that 70% of the units had to be sold before the funds would become available – and that was it. The developer could then start selling, achieve his target sales (in most cases), confirm the appointments of a professional team and get his builder started.
“In today's difficult economic climate there much development land available, but no take up. Banks are now risk adverse and reluctant to finance developers – and the problem is heightened by the fact that once land has been acquired the developer has to design a product that will sell.
“In today’s market, that is not easy because the developer’s product has to compete with what is available on the second-hand market, where prices can be 20% to 30% lower.
“Private sellers, especially those who have owned a property some time and have been able to pay off a large amount of the bond, or had a low bond originally, can afford to lower their prices. The property developer cannot – he is building subject to today’s costs.
“Nevertheless,” said Henry, “if the developer is ingenious and has a well chosen site, it is still possible that he will come up with something that will appeal to a certain sector of the market – even though in today’s conditions he is unlikely to be able to finance a very large project.
“Having got his ducks in a row, the developer is today likely to find that the bank will take a very careful look at his balance sheet and turn down anyone who in any way could be risky. Then, too, these days the bank will be wary of presale figures – even when these are accompanied by a deposit. They will probably insist on a signed agreement of sale from every buyer and will quite possibly demand a complete sell-out rather than, as previously, a 70% achievement before they advance the cash.
“As a result, many developers now have to be able to go it alone – building entirely on their own resources.”
Henry said that it could be several years before the banks revert to their old ways of assessing a development and a developer.
“The downturn, high interest rates and the National Credit Act together have caused a record number of casualties. Throughout South Africa, wherever one looks, one comes across buildings, half completed developments and vacant land up for sale or auction – and, regrettably, these very often do not find a buyer. In many cases landowners/developers have bought sites for development with large bonds only to find that there is no market for their proposed products or, if there is a market, that they are unable to secure bonds for the end users. This is likely to lead to a great deal more casualties towards the end of this year.”
Rawson Developers/Construction, said Henry, had seen the difficulties ahead of the crunch period and had been very selective in what they purchased – which has “kept them out of trouble”.
“We chose prime development sites in areas such as Rondebosch, where the market will always be stable. In addition, we began to market ourselves to other developers as building contractors, using the experience that we have gained over the past 25 years the company has been in action. We promise our partners we will take the hassle out of the building operation and will handle the development as if we were doing it for ourselves.”
Two recent developments for well-known developers, said Henry, have proved that when working for others, Rawson Developers/Construction will deliver on budget and on time.
The company, he said, had shifted its emphasis to commercial development, especially the conversion of existing buildings into shopping centres or mixed-use developments, which are likely to be successful in the current difficult market.
The latest project on which Rawson Developers/Construction is about to launch is the conversion of the Porter House landmark building in Belmont Road, Rondebosch.
For further information contact Paul Henry on 021 658 7100 or email firstname.lastname@example.org.
Article by: Rawson Properties