SA property investors increasingly keen to explore international markets

The London property market is highly competitive and options for South African investors to raise finance or conduct lengthy due diligence are therefore not as readily available as they are in South Africa. As the exchange of contracts and deal completion are often very close together, funds have to be available and ready in advance, so that when the opportunity does arise, the property can be secured immediately.

 

This is according to Elias Tzouvanni, Co-director of Nexus Property Group (NPG), who says that while many South African investors would like to capitalise on the more developed property market in London, there is often a lack of understanding around the practicalities of purchasing property overseas.

 

“One of the most common queries we receive from South African investors in the process of selling local property is around what they should do with the money they are going to receive from the sale. Given the ongoing uncertainty of the rand, there has been an increasing interest shown by investors in international markets, especially London” says Tzouvanni. He goes on to explain why London is such a popular investment destination for South Africans. “In addition to earning stable returns and serving as protection from the rand’s future volatility, South Africa and England share a long-standing history. The United Kingdom also boasts a highly developed property market, offering investors a vast range of opportunities in every economic climate. “Adding to this attractiveness is the fact that the Bank of England recently cut interest rates from 0.5% to 0.25% – an all-time low,” Tzouvanni adds.

 

As South Africans rarely have access to the deal flow which is available to full time London-based investors who often have decades of experience, Tzouvanni recommends that investors who are interested in this opportunity consult with experts who possess extensive experience in facilitating international transactions of this nature. “Partnering with a well-established property group will ensure that the process moves as quickly and efficiently as possible. NPG has a satellite office in London and can handle these transactions in their entirety on behalf of clients, from sourcing the property through to completion”.

 

He points to a recently purchased free-hold mixed-use property in Zone 4 as an example. “NPG concluded the purchase and are currently asset managing the property to improve the tenancy. We predict that the eventual yield for the property will be in the region of 5%. Once the property is tenanted, NPG UK will facilitate the refinancing of the property through their relationships with financial institutions, to unlock capital for further investment.”

 

Tzouvanni concludes: “Essentially, South African buyers will be competing with experienced property investors from places like Eastern Europe and the Middle East, adding extreme pressure on deal facilitation and turnaround time. NPG is able to assist by offering local clients exclusive access to off-market properties within Zone 1 to Zone 4 of London, bringing together the experience and deal flow required to secure a high-yielding property.”

GBCSA launches Green Star – Communities Pilot Programme in South Africa

GBCSA launches Green Star – Communities Pilot Programme in South Africa

 

The Green Building Council South Africa (GBCSA) has announced the launch of the locally applicable version of the Green Star – Communities rating tool in South Africa. The tool is a framework that will drive the development of more sustainable neighbourhoods and precincts, ultimately making African cities more sustainable.

 

Green Star – Communities, developed by the Green Building Council Australia, evaluates the sustainability attributes of the planning, design and construction of large scale development projects, at a precinct, neighbourhood, and/or community scale. The Green Star – Communities rating tool assists governments, development project teams, contractors and other interested parties aiming to deliver large scale sustainable developments to:

 

  • Provide diverse, affordable, inclusive, well connected and healthy places to live, work and play;
  • Protect, maintain and restore the natural environment by reducing the ecological footprint of developments;
  • Receive recognition for demonstrated leadership and commitment to sustainability;
  • Achieve real value for money through demonstrated whole-of-life cost savings; and
  • Encourage opportunities for business diversity, efficiency, innovation, and economic development.

The tool is being launched in South Africa through a stakeholder engagement process that includes a number of pilot neighbourhood scale projects, which will test and be certified by the GBCSA using the framework. The stakeholder engagement process is sponsored by the United States Agency for International Development (USAID) through their South Africa Low Emissions Development Programme and comprises a Technical Advisory Panel including over 30 industry experts who are providing input and guidance on the applicability of the criteria in the Green Star tool in the South African context. The advisory panel includes both private and public sector stakeholders – such as SALGA, the City of Tshwane and Johannesburg – as well as academia.

 

The process will conclude with the release of a Local Context Report in January 2017. Projects can register for certification under this tool from November 2016 onwards.

 

GBCSA CEO, Brian Wilkinson says that green building and sustainability in the built environment is about more than just buildings. “It’s also about the spaces, connections and infrastructure between the buildings, a precinct, a neighbourhood, or a city. At this scale one can truly see the real impact of sustainability and make the connection between various daily activities between home, work, gym, school and entertainment.”

 

Pilot Projects

 

There are 14 projects that the GBCSA accepted via a call for pilot projects in August 2016, which form part of the Technical Advisory Panel. These pilot projects are vital early adopters to support the long term success and applicability of this Green Star tool in the African context, because they will provide essential feedback allowing the tool to be appropriately adjusted to the local context. Of these 14 projects, eight have already committed to certification using this tool, targeting either a 4, 5 or 6 Star rating from the GBCSA, with the other 6 seriously considering it reviewing the details. These eight projects already targeting certification are listed below and more information on each project is available under Notes to Editors:

 

  1. Braamfontein West, Johannesburg, led by EcoCentric
  2. Blue Rock, Somerset West, developed by Swisatec
  3. Garden Cities: Phase 13 Sunningdale, Cape Town, developed by Garden Cities
  4. Kgoro Precinct, Johannesburg, developed by Ceder Park Properties
  5. Menlyn Maine, Tshwane, developed by Menlyn Maine Holdings
  6. Nature’s Path Lifestyle Village, Keurbooms, Plettenberg Bay, developed by PMG Africa
  7. Oxford Parks, Johannesburg, developed by Intaprop
  8. Sandton Gate, Johannesburg, developed by a joint venture between Abland & Tiber

 

The GBCSA will be reviewing the ‘Communities’ name of the tool in the African context, to make it more identifiable with neighbourhood/precinct scale sustainable development projects in Africa, and will announce this in the first quarter of 2017.

SAFMA Annual Conference and FM Expo

The SAFMA annual conference and FM Expo will take place on 10 and 11 May 2017 at the Gallagher Convention Centre in Midrand.

Speaker details and booking forms will be available on the website soon. The organisers look forward to seeing everyone there.

Property funding to move away from major commercial banks in 2017

Commercial real estate debt has been forecast to move away from major commercial banks, with 2017 expected to see a boom of new ‘alternative’ senior debt, mezzanine and debt equity funds, says Stuart Chait, Executive Chairman of Land Equity Group.

 

The South African born property mogul and entrepreneur believes that the new offering in commercial property financing packages will result in a more diverse, aggressive and competitive commercial real estate lending sector. ‘’The alternative offerings will span across sub-Saharan Africa rather than be solely focused on South Africa, due to the fact that it is in this region where the most growth is being seen,’’ say Chait.

 

Commercial Real Estate debt (CRE debt) has a long history as an investment category in international investment portfolios and Chait says the trend is already visible in developed international markets such as the United Kingdom, Western and Eastern Europe, Australia, Japan and the United States. “CRE debt offers stable income returns, with flexibility which means it can be perceived as a defensive and conservative investment. Investments can be tailored to match the risk‑return profile of a specific investor,” Chait said.

 

“This trend will become even more evident during 2017. A variety of factors including rating agencies’, investment analysts’ and investors’ requirements have resulted in banks reducing the size and leverage of loans on offer, tightened underwriting standards, and increased loan pricing for certain segments of the market.  South African banks are now highly regulated due to the practice of Basel 3 regulations and are busy increasing their capital ratios up to the required limits for implementation in 2019. As the result of an extended turnaround time required for compliance issues relating to loans, banks have become sluggish and clients are losing opportunities.”

 

Chait believes that the market demands another option, and for there to be much more competitiveness. ‘’We anticipate that during 2017 many of the debt packages will come from investors seeking alternative investments, rather than the traditional banks.’’

 

“South Africa has a strong institutional and pension fund industry with a huge demand for fixed-income investments. Good quality, investment-grade senior debt is therefore an attractive investment to the fixed-income market, and as the senior debt has the highest level of security it provides a conservative interest coupon. Senior debt comprises up to 60% of the banks’ loan-to-value of an asset or an asset portfolio.”

 

Chait said that mezzanine debt was usually the next 20-30% slice, with pricing ranging from 15 to 25% per coupon, depending on risk. “The last slice of funding falls under equity or debt equity and is usually 10-20% of the total funding required. This has the lowest security but the highest return – a targeted internal rate of return from 40% upwards. In developing countries, as little as 5% equity is often required.’’

 

Since the credit crisis in 2007/8, there has been little debt available in the market and property owners have been forced to list their commercial portfolios. “Typically, a listed property Real Estate Investment Trust has anything from 30-50% debt, and the balance is held by shareholders who are mostly institutional. The length of debt is also generally short, and this is where the problem lies.’’

 

New banking regulations necessitate for more capital to be put up against its property loans than what was required before the credit crisis. “Banks have therefore become short-term holders of property debt, and usually sell or securitise the debt to the institutions who are looking for safe and secure coupons to pair with their policies or investments.”

 

Chait feels that there will be a boom in the creation of property debt funds and products, as many institutional investors now have cross-border mandates and the ability to hedge their income for policyholders and members.

 

“Fund managers are also regulated, but because they do not have the compliance factors associated with holding banking licenses, our experience is that they are able to perform much faster than commercial banks.’’

 

The alternative commercial property finance industry is lucrative because the debt is well-secured, the returns are excellent and the turn-around time is fast, making it entrepreneurial in its appearance. The decision-making ability from engagement to execution can sometimes be done within a few days, whereas banks are hamstrung and can take months.

 

“Cash-strapped property investors or developers are often forced to seek funding from the alternative finance market. This particular hedge fund money is very expensive, at up to 30% interest per annum, and there is not enough competition in the market because international funds have still not been approached and this money not been raised aggressively by local fund managers. After the credit crisis, we saw a wave of investment bankers leaving to start up hedge funds and private equity funds. I believe South Africa (and covering sub-Saharan Africa) will see a new and robust industry start to gather momentum, and what is most important for investors and managers is that these funds are cheaper and more efficient to run than commercial banks or listed property funds.”

 

Land Equity Group will be looking to invest in this space by backing the debt fund management teams to set up funds, and who will then go and raise money for capitalizing the funds on an ongoing basis from the local and international markets. “We already have an indicative anchor investor on the senior debt fund for $50-million, and another Middle Eastern investor for $100m, but the success of this venture will not only be the amount of money raised, but rather be based on the quality of the loans, and the experience and performance of the management team that runs it. There is extensive administration, legal work and risk assessment that comes with managing loan books such as these, and that is why the people and experience are our focus. We have already had approaches from both local and international CRE debt teams wanting to get onboard. We want to back the people, and to let them manage and build the business across the continent and in their own management styles.’’

 

“The real issue in sub-Saharan Africa is not that there’s not enough opportunities, but rather that the “ticket size” per investment isn’t big enough. Real estate, being a big capital investment item, will now fall into the same category of longer-term investments such as resources and infrastructure, and this is what big investors look for in developing markets. Alternative Real Estate Debt Funds will help catapult this sector into a serious growth phase.”

 

Chait and his Swiss and UK partners plan to set the first new team up in early 2017 to initially raise US$1 billion in senior, mezzanine and equity finance, and international advisors are currently being selected and appointed to run the initial capital raising process. We are targeting sovereign wealth funds, life institutions, pension fund and empowerment fund money from Canada, US, Germany, Singapore, the Middle East, China and Japan, as well as South Africa. “I feel that the timing is perfect. Sub-Saharan Africa with its 1.1 billion population is on the cusp of catching a 20 to 30-year wave of capital investment, similar to what we saw with the BRIC countries two decades ago.’’