SA property investors buying in cash

So maintains Org Geldenhuys, managing director of property development and marketing company, Abacus Divisions.

“Since late last year – and increasing during 2011 – we have seen more than 50% of our deals being concluded by clients making cash payments. This seems to be an increasing trend as investors are forced to find alternative funding sources, or to raise the cash – as banks are just too reluctant to lend money, erring seemingly excessively on the side of caution.”

This trend also seems to be playing out in the USA, where USA banks – following that country’s disastrous sub-prime mortgage crisis - are even more reluctant than SA banks to loan money.
Lori Nery, owner of Coastal Realty in New Bedford (USA), said that out-of-town investors have been inquiring about buying properties in the struggling coastal city – where property prices have been plummeted. Now is the time to buy – but banks just aren’t lending money.
He said that nearly half of his company’s sales this year have been cash only. “I think the word is out we are a good bargain,” Nery said.

“This trend towards paying cash is not good for the commercial property market because not all investors have access to cash,” said Geldenhuys. “I get the feeling that banks are being excessively cautious and this could have a serous backlash in the property market – in both the commercial and residential sectors.”

Commenting further, he said that property developers are increasingly developing for cash, later approaching the banks for finance. “This is undoubtedly happening more and more as banks are reluctant to take risks and developers are seeing opportunities that just cannot be missed. These days banks only finance on the back of a solid tenant signing lease agreement of about three to five years, with decent escalations.

“At Route 21 we have seen that over the past two years almost all the developments made on risk were developed using cash – and almost all have found tenants. Developers are richly rewarded for the risks taken, with leases up to five years and a 10% escalation in rates. Tenants also like new buildings – and although markets are tough we see people moving to improve the company’s image, as not all companies are cash-strapped. There are pockets of excellence in the tenant and commercial property market,” said Geldenhuys.

“For now it seems that those wise investors, or developers, with cash in their hands can cherry pick good investments – provided they buy and develop in sought after areas, such as Centurion’s newest development node. Additionally, most developers with cash in hand are looking to plough the excess cash into developments as interest received on those cash balances are dismal.”

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