Tuesday, 20 June 2017 15:08

Black property developers hindered by lack of finance for BEE developers

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Stuart Chait, Executive Chairman of Land Equity, a South African based privately held property investment, development and private equity company, has called on government to back Black Economic Empowered (BEE) property developers by making access to funding easier.

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In order for the industry to transform, Chait believes potential BEE developers require mentorship or internship, and easier access to debt and equity markets than what is currently available.

“To date, this has been lacking considerably, which is why the industry lags way behind others in transformation. Property development means construction, which translates into many, many jobs - much needed in South Africa to stimulate the economy,” Chait said. “While the major property companies have all done BEE deals with developments in the past, this has been mostly on a shareholding level, rather than on a skills and mentorship basis. What needs to happen is the transfer of skills and access to debt and equity for these incumbents which is critically required in order to enable BEE property developers to build up the industry and the economy as a whole.”

Chait said property development was “slow in process, risky (if one doesn’t understand how to de-risk a project), capital intensive and requires specific expertise which can only be developed through on the ground experience”.

“Multi-disciplinary skills are needed to bring a development from planning to fruition; ranging from land acquisition, planning consent, establishing highest and best use, intimate market knowledge, risk assessment, optimal funding and tax structuring, marketing and sales skills, construction and legal knowledge. You need to have patience combined with an in-depth understanding of the various disciplines involved in this industry.  It is almost like being the conductor of an orchestra, but also knowing how to play each instrument.”

Property development is a large contributor to economic development, as it creates jobs in the banking and construction industries, as well as the professional consultants and services sectors. 

“There is a massive shortage of housing in South Africa and this should be the initial target market for BEE developers to begin their careers and to ‘cut their teeth’, as the demand for the product is obviously there, and this lowers the project risk. Once the housing market skills are perfected by these developers, it would be a natural progression for them to be mentored into the commercial and industrial side of the industry.

“Government needs to focus on this sector, and back BEE property developers into this space by providing funding. Commercial banks and other debt providers also need to play more aggressively in this space, in order to help new BEE developers, as by doing so, it helps create jobs, which boosts the economy, and everyone gains from it.”

Chait believes the property industry needs BEE champions to drive the need to create black property developers and to assist them in finding easier access to both debt and equity funding.

“This will be one of the pieces of chain that will drive the country's economy to grow again.”

Last modified on Wednesday, 21 June 2017 23:00

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