News from - Nedbank

NEDBANK CORPORATE PROPERTY FINANCE (CAPE) STILL NUMBER ONE IN THE FINANCE SECTOR AND STILL GROWING

For the property sector the year ahead will be one of “constraints” says Richard Thomas, Divisional Director of Nedbank Corporate Property Finance (Cape) – but despite these, Nedbank Property (Cape) is budgeting for a 15% increase in turnover and should end 2008 with its total assets also up 15%, to R13,5 billion.

For developers the constraints, said Thomas, will be caused by the slow-down in the global economy (especially the USA), the ongoing shortages of electric power, the lack of trained personnel in all fields, the higher than anticipated inflation and the increasing uncertainty in the minds of international investors about the political future of South Africa.

In the Western Cape, said Thomas, delays in approvals from the City Council and certain municipalities, many of whom lack the resources to fund further land zoning, coupled to the dire shortage of land, will continue to limit development opportunities.

In this scenario, said Thomas, big developers and construction companies, especially those which some years back had the foresight to acquire zoned land, will continue to forge ahead but smaller developers and builders are likely to struggle.

Nedbank Property, controlling 30% of the property market nationally and 35% in the Western Cape, is the frontrunner in this sector followed by Absa and Standard Bank. His team, therefore, said Thomas, is well placed to understand where Cape property is heading.

Expanding on this, Richard Edwards, Manager, New Business, Nedbank Corporate Property Finance (Cape), said that the residential sector had “run hard”, had peaked in 2007 and is now leveling off. The market under R1 million remains strong with 26% of purchasers currently coming from the emerging black middle class.

Despite the modest current yields of 4 to 5%, developers, said Edwards, are moving back into residential knowing that the shortage of land will make new offerings here sought after once the present supply is taken up and could raise rentals 15 or more percent in the coming year.

Industrial property, said Edwards, comprised 20% of Nedbank Property’s new business in 2007 and this figure is likely to go higher this year. Again, there is a shortage of zoned land with the result that areas such as Montague Gardens and Airport Industria have realised land prices of up to R1 700 per m2 but new industrial nodes are springing up in Macassar, Blackheath, Vissershok, Phillippi and Firgrove. Industrial unit investors are now getting 7 to 10% returns, i.e. better yields than are now possible in residential.

In the office market, new vacancy lows of around 3 to 4% are now being reported by brokers across Cape Town and mid-size users are finding it difficult to secure premises.

The office sector, said Edwards, is, therefore, ready for further development with A-Grade office space likely to touch R130 per m2 by 2008.

The retail sector is now feeling the effects of the higher interest rates, the National Credit Act and the cutbacks in consumer spending and reports from the market indicate that smaller tenants are beginning to default on their payments.

Thomas said that the R12 billion social benefits injection into the economy for this year will keep the lower end of the market alive and both Nedbank men agree that there is considerable scope for the revamping of “tired” neighbourhood and convenience centres and for the development of new shopping centres in outlying towns. Nedbank, for example, is currently funding Cape clients’ regional shopping centres at Potchefstroom and Hartebeespoort Dam.

Thomas concluded Nedbank’s review by saying that success in property financing comes to those who offer the best service and in today’s market this involves being increasingly flexible, adaptable and fostering good client relationships.

“It should always be a partner operation, with the bank using all its experience and skill to make the developers’ and investors’ lives easier. I like to think that we are service orientated, approachable and cooperative. This year we will be working to improve further our systems and methodology in all areas with a view to giving even better service.”

Thomas said that the property sector had shown a surprising resilience and had been able to surmount interest rate rises and other factors which in the past might well have led to a slow down. This, he said, is a testimony to the fundamental strength of the SA economy and augurs well for the future of Cape property.

Article by: www.nedbank.co.za