Top property man says onerous new terms by bank managers means fewer developments, could be good for existing landlords
It’s not just home-buyers who are struggling to obtain finance for properties: big investors say onerous terms by banks mean new developments will not go ahead. That in turn suggests continued low vacancies in office space.
The credit crunch has resulted in banks withdrawing much funding for speculative developments, Marc Wainer – executive director of Madison Property Fund Managers – said on the SAfm Market Update with Moneyweb this week.
Wainer was talking about a proposed merger between Madison (JSE: MDN) and other publicly listed property companies Redefine (JSE: RDF) and ApexHi (JSE: APA). Such a move would produce a much bigger property company worth nearly R20bn, making it attractive to index-tracking funds.
Growthpoint (JSE: GRT), South Africa’s largest public property company, recently made it to the ranks of the country’s biggest 40 companies.
“If we follow the Growthpoint kind of example and we do get into some of the indices, then I think there is substantial upside in the share in terms of rerating,” Wainer told Moneyweb host Alec Hogg on Thursday.
Aside from improving the rating for shareholders, Wainer’s team believes that becoming bigger is essential “now that we are going into stormy waters and choppy seas”.
If the economy remains the way it is, “there have to be casualties, so we can say we are defensive and all those kind of things,” said Wainer.
He pointed out that “across the board all funds are going to have tenants who are going insolvent or out of business” in a tougher year.
Radio listeners also heard that with retailers under pressure and higher electricity costs and rates, it is difficult for big landlord to “get real growth out of rentals”.
“In the office sector, I think we are still going to see growth because the credit crunch has resulted in the banks withdrawing a lot of funding from speculative developments,” said Wainer.
Banks “now want to see 25% or 30% equity, 60% pre-let, and those are not going to happen”.
In terms of existing office space, this is “very positive”, said Wainer.