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BIGEN hosts Developers' Cocktail
24 April 2008
BIGEN AFRICA recently hosted a Developers' Cocktail aimed at establishing a constructive dialogue with players in the property development market in light of the challenging economic landscape in the country.
Held at the SAPPI Conference Centre on 23 April, the guest speaker at the event was Dr Iraj Abedian of Pan-African Investment and Research Services - Economic Advisor for the Accelerated and Shared Growth Initiative for South Africa (ASGISA) and member of the Board of the Development Bank of Southern Africa (DBSA).
Dr Abedian's presentation focused on providing an overview of the global economic climate and the current key macroeconomic trends. Explaining the concept of equilibrium between economic structure, the political economy and financial markets, he discussed some of the main global issues and debates around each of these elements.
Dr Abedian went on to relate these global trends to what is happening in our global economy, asserting that - despite the current economic uncertainty and rising interest rates - South Africa has a number of factors counting in its favour. First among these is the fact that our government finances are in a good condition and sitting on a surplus. In addition, although economic growth has come down to between 3.2 and 3.8 percent, we are still in a relatively favourable position. "The underlying growth is quite robust as it comes from investment in mining, petrochemicals, infrastructure and so on - and not from consumption", he said.
In terms of the property market, he said that while the shortage of electricity has put some projects on hold, the market will find a way around it. Although these solutions will be at a higher cost, the fact that developers do not absorb, but rather pass the costs on will stand them in good stead. "Even though the end consumer will absorb that cost, asset prices have adjusted. People are getting used to the fact that their Rand no longer buys what it used to so asset prices are going to be expected to be high", he added.
It is a known fact that the current interest rates are not favourable for development because of the carry cost. However, says Dr Abedian, since that cost is shared throughout the economy, relative costs will stay the same. He forecasts that the rise in interest rates will only continue for a 12 to 18-month cycle before rates begin to come down again. He therefore advises property developers to anticipate this cycle and plan accordingly.
Dr Abedian painted a very different picture from the often pessimistic view that many hold towards the state of the property market. Among the other factors that he believes count in the favour of the market are political forces, including the substantial pressure for housing delivery nationally and increased capital expenditure at the municipal level.
In conclusion, he said that in his view the global market is going through a turbulent cycle - one which is inevitable and unstoppable. However, as with all cycles, it will eventually come to an end. More importantly, South Africa's vulnerability to this turbulence should not be overestimated. We will recover. "Don't get too gloomy about it. You need to be cost effective and you will need to be creative, but it is not the end. It may very well just be the beginning", he said.
View Dr Abedian's presentation
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