By Thandisizwe Mgudlwa
The revelations that a decrease in land prices and interest from property investors in South Africa has resulted in an increase in the number of retail developments across the country being economically viable, have been welcomed by various investors.
And in addition, this has been further enhanced by investments from local and international projects to fast-track rural development projects and to improve infrastructure in these communities.
According to Gary Palmer, CEO of Paragon Lending Solutions, people are starting to trickle back into the development market with a number of developments showing enormous potential.
“We are seeing an increase in the number of people buying up zoned land. For the last few years the demand for land was very low for a few reasons.”
Palmer reveals that previously, lenders were not prepared to loan money with the land being put up for security.
“Building costs were also too high to make many projects feasible, particularly those in rural areas where poor infrastructure, transport and operational expenses would exacerbate the costs. In addition, land owners were requesting too much money for their land. And so the rural markets were not being serviced by the big developers.
“Furthermore, the commercial property sector has a large supply of offices and a number of these are vacant so lenders are still treading with caution when dealing with requests for loaning money for developing office space.”
Palmer also explains that following the global economic crisis in 2008, land prices decreased and there has been a push from the Listed Property market and from private investors to take advantage and develop retail shopping centres in rural markets where there is greater demand for retail space.
“It also comes at a time where government has promised to improve roads in rural areas. Recently, a R170 million project was launched by the Eastern Cape government and the EU for funding infrastructure development in areas like this.
“Investors and businesses are always looking for opportunities in the market. With retail sales being their highest since December, with massive demand in rural areas, property developers are getting involved as they can build retail centres with leases in place from A-grade tenants who are eager to supply to this market.” adds Palmer .
“Many retailers and banks including Capitec, African Bank and some commercial banks are focusing on this segment. Because strong tenants are eager to move in, certain banks are now willing to finance these developments,” he says.
Furthermore, Palmer advises that due to a number of developments springing up across the country, property investors need to do their research to ensure that they are investing in the right areas.
“Good investments are out there, but it takes thorough research to see where investments are flowing in order to ensure that they do not come with hefty hidden costs and other complications. Property investors also need to ensure that they have the necessary finance in place before entering a transaction.
“A financial advisor or an experienced lender in the property space will be able to advise on the actual cost of a development and can advise investors on how to arrange the finance that is necessary,” he concludes.