select
|

Non-listed commercial property remains under pressure

Listed funds are doing well as they have access to funding and tenants are often stronger. This is a key indicator of a good commercial property investment. However, it is much more challenging to obtain these factors in the non-listed market.

Although reports indicate a dramatic improvement in SA's commercial property industry, gains are limited to listed property funds, Gary Palmer, CEO of asset-backed lender, Paragon Lending Solutions said on Tuesday, 24 April 2012.

"Promising growth in the commercial property industry reported on last week was largely limited to listed property funds and will not be felt by investors investing in non-listed property," he commented.

The SA Property Owners Association's property index, International Property Databank (IPD), last week revealed that listed property funds achieved a return of 12.2% compared with 2.6% for the equity market and 10.1% for bonds.

Palmer said that while listed property funds were enjoying good growth at the moment, the average investor wanting to invest in commercial property was still facing significant challenges - especially in terms of the pressure on rentals, increased vacancies and reduced escalations.
According to Palmer, capital growth on listed property was strong because listed properties generally had strong tenants and good governance.

"Listed funds are doing well as they have access to funding and tenants are often stronger. This is a key indicator of a good commercial property investment. However, it is much more challenging to obtain these factors in the non-listed market," he said.

Apart from vacancy issues, the size of deposits required for the purchase of a commercial property has increased over the past years, adding more pressure to investors.
In the past, a deposit of 20%-25% would have been sufficient to secure the purchase of a commercial property.

Nowadays, buyers are required to put down in excess of 35%-40% of the price as a deposit - which causes significant problems for an investor.

Palmer pointed out that even though interest rates were at an all-time low, this was not necessarily helping investors.

"Banks used to lend at prime-minus rates. However, investors would be hard-pressed to find a bank that will lend at anything less than prime. Therefore, even though interest rates are lower, the benefits are not being passed on to the average investor," he noted.

This means that many investors looking to put their money in commercial property will find it difficult to obtain funding from the banks unless they put down a substantial deposit and unless there are long term leases in place.

Investors should seek alternative funding from second-tier lenders who could provide funding against commercial property even though the leases may be short term and may not be considered blue chip by the bank, Palmer advised.

"Alternative lenders will look at the potential future income that the property can generate, while the banks focus purely on the serviceability of the loan," he added.



  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 22 Feb 2018
      An excellent credit score is one of the most priceless assets a potential home buyer can have. This tool has the power to secure favorable mortgage and refinancing rate, influencing everything from the size of the loan repayment to the interest rate on the home loan.
    • 22 Feb 2018
      What do you do if you love your home’s location and the area, but the home no longer fits your growing family’s needs? Do you stay and renovate your existing home or find a home that meets your developing criteria?
    • 22 Feb 2018
      While every owner wants to sell their property at the best possible price, overpricing a home can be the kiss of death for a sale.
    • 21 Feb 2018
      Given the hand they were dealt, government has performed a delicate balancing act which it is hoped will serve to reignite confidence in investment in South Africa, regain our global credibility and satisfy the credit ratings agencies, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
    • 21 Feb 2018
      The real estate mantra, ‘location, location, location’ remains a strong market influence regardless of the prevailing economy, with suburbs like Rondebosch enjoying the buffering benefit of being ideally situated.
    • 21 Feb 2018
      These days most buyers are using online property portals like Private Property when house hunting due to the convenience, up to date information and variety on offer. “The property portals have revolutionised the way buyers shop, but they do need to be cautious – viewing photos online is no replacement for viewing the property in person,” says Bruce Swain, CEO of Leapfrog Property Group.
    • 20 Feb 2018
      Owning a home is a milestone that most South Africans aspire to. Becoming a homeowner is a step towards growing personal wealth and owning an asset that appreciates in value over time, provided of course that the correct principles are applied during the buying stage of the process, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 20 Feb 2018
      The suburb of Greenstone in Johannesburg east came to be over the last two decades. “In the beginning, it was literally just a hill with not so much as a shopping centre,” says Michael Levy, Property Consultant at Jawitz Properties Bedfordview. Today it has plenty shopping facilities and is fully built, boasting high-density, upmarket housing and residential estates, though still has a few pockets poised for commercial development.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK