Opportunities exist for successful entrepreneurs to invest in the property in which they operate
Expert: Rick de Sousa, Commercial Property Finance Executive of FedGroup
The South African economy cannot wait for good interventions to trickle down. Instead, businesses themselves can help create the environment that allows entrepreneurs to succeed.
In late August, President Cyril Ramaphosa told Japanese business delegates that he was going to create an “entrepreneurial state”. He was at the South Africa-Japan Business Forum in Yokohama, attempting to lure much-needed investment into the country.
These are welcome comments because entrepreneurs are a national asset. They drive innovation and competition. Their businesses employ people. Their products and services contribute to alleviating some of the country’s most pressing problems.
Successful entrepreneurs grow the economy and create wealth – and South Africa needs both. Ramaphosa said the country would introduce a revitalised industrial policy. The government would make it a priority to ensure all support measures for business were in place.
“We recognise that these support measures are only meaningful if we create an environment for business to thrive. To that end, we have embarked on a number of initiatives aimed at creating what we call an entrepreneurial state.”
However, while the intent is to be welcomed, little in the way of actual structural reforms that our economy so desperately needs have been forthcoming. This is reflected in both the weak rand and overall investor confidence, which has seen the country head into the longest business cycle downward phase since World War II.
While these sentiments will also impact on property valuations, it does not mean the sector is without opportunities. One such opportunity often overlooked is the premises where the business is located. Few entrepreneurs think of property as a financial opportunity but nothing could be further from the truth.
Let’s be clear. We are not talking about the listed property sector, where companies are at the mercy of shareholders who chase short-term profits at any cost.
This approach is partly to blame for the poor performance of the sector in recent times. We are speaking about property in the form of bricks and mortar. A stock can implode.
A solid property that is well run and maintained and supports a going concern, in a good area, will stand the test of time. Most businesses – whether in services, manufacturing or even the rental market – operate out of a property. Some business models are 100% reliant on the actual property.
So, in a property environment where there are attractive opportunities in a buyers’ market, what is holding back business people with solid track records? As many an entrepreneur will tell you, gaining access to commercial property finance can sometimes be a hugely onerous and distracting exercise.
Issues include red tape, burdensome conditions imposed by those with market dominance and a shortage of liquidity. However, innovative alternatives are available that can have a massive impact on a business’s prosperity.
These include interest-only terms, where the property owner services only the interest portion of the loan and not the debt portion. This frees up a substantial cash amount every month that can be reinvested into the business.
In addition, all the growth in the value of the property belongs to the entrepreneur when the building is finally sold. Another consideration is the turnaround time to arrive at a finance decision.
Many providers take months to provide loan applicants with a decision but there are also businesses who understand the entrepreneurial mindset and can provide a loan decision in principle within days.
It may appear nostalgic or idealistic but sometimes an entrepreneurial mindset and business-friendly environment is one where the red tape is dumped and deals, in principle, are done with eye contact, over a handshake and quickly. One must never confuse this old-school ethos with a lowering of standards.
Sustainable business should always be built on the back of solid research, due diligence and an honest and accountable track record. Commercial property finance is no different.
However, agility and innovation in empowering entrepreneurs will have a bigger impact on individual businesses and the economy than the current status quo.
By adopting an innovative approach to owning their own premises, entrepreneurs may unlock the value that makes the difference to help their businesses survive and thrive.