Real Estate Investor Magazine South Africa November 2013 | Page 21

UPFRONT
Once one or more of these entities are established, the next step would be for
them to establish development divisions which would have access to the vast
tracts of land and other potential sites owned by the government. Should the
government require new premises, the natural development partner would
be these entities.
Clearly the intention would be to create listed property entities that are
not government institutions but independent, sustainable operating entities.
To this extent, once the government has facilitated the establishment of an
entity, the new entity would become like any other listed property company.
Management could elect to utilise debt to grow the company and to fund
developments or it could issue new shares. Management would compete in the
market to acquire government-tenanted properties which would add further
critical mass to the portfolio. Since these entities would be in a position to
renew leases if appropriate, there would literally be no opening for “dirty
dealings” in order for leases to be renewed.
The picture starts to emerge that the government’s real estate needs would
be fully addressed by the new listed entities and the debate over who is entitled
to sign a lease with government and for how long would be resolved. The
need to negotiate with the Department of Public Works would be obviated
since parameters could be set in respect of rentals and hence the potential for
corruption is eliminated.
Because the “essential ingredients” belong to the government itself, the
impediments to success are few and the beauty is that once the order has been

Q&A

given, the timing could be almost immediate. Whereas in the private sector
promoters of listed property companies need to amass a list-able portfolio and
then approach banks for debt and the market for equity, here the portfolios
are available and the equity can be placed over time. In the case of government
portfolio listings, the stock of properties is almost endless and new entities
could be rolled out on an ongoing basis. The advantage to government is that
“non-productive” assets are securitised and the coffers of the fiscus are swelled.
Although what is being set out here is simple and straightforward, many
conversations have been held with Directors General and Ministers who nod
their heads approvingly and then proceed to put the discussion out of their
minds. One cannot but believe that there would be numerous individuals
who would see their “road to riches” being compromised hence the lack of
any further discussion or activity. Accordingly, to successfully implement
this strategy, it would necessarily require a “top down” approach. To be more
explicit, the President would need to order his subordinates to make it happen.
The unfortunate part of this is that despite the opportunity to really change
the face of property ownership in this country, there is little or no chance of
success for this or any other scheme of a similar nature because, firstly, it will
not find a “champion” within government, secondly, it removes the availability
of real “low hanging fruit” (excuse the cliché) for the select few and finally,
it is simply easier to lay the blame for lack of transformation on the private
sector.

RESOURCES

Capstone Property Group

Which sector is performing the best? Industrials, office, retail or hospitality?
Currently the best performers are retail and industrial.
Why do you think that is?
Large dominant centres have retained good trading. Industrial feeds off strong
retail and logistics to Africa, which is growing.
What are the challenges in the commercial sector?
The largest risk is an upward movement in interest rates. Other risks are
administered cost increasing in excess to inflation, and the lack of growth in the
economy results in poor demand for space and increased vacancies.
What advice would you give to someone looking at i nvesting in commercial
property?
I prefer listed property as an investment as it provides investors with a liquid
and tradable exposure to commercial property. Further you get the benefit of
professional management, scale and improved cost of funding!
What are the best finance options available for commercial investment?
Equity, mortgage debt from banks and institutions, bond markets and
commercial paper markets. The competitiveness of the various alternatives
are very dynamic and depends on various factors, like for example, quantum
of funding required, term of funding provided, quality of security and of the
covenant.
What has the last year been like for commercial investing?
Markets have been volatile but investors have seen good growth in income with
sector average distribution growth being approximately between 6 and 7% for
the sector.

Estienne de Klerk
Executive Director
Growthpoint Properties Limited
www.reimag.co.za

Where do you see the market going in 2014?
Depends on your view on interest rates….we are concerned that interest rates
will start rising over the next few years, which will put pressure on the capital
value of the listed property Reit share prices. Hopefully the increases in interest
rates will coincide with positive/ buoyant economic activity which will support
strong growth in distribution, growth which will counter some of the effects of
the higher yield environment.

November 2013 SA Real Estate Investor

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