Developers need to factor-in water security
Landlords and commercial developers will need to urgently rethink sustainability issues if they want their properties to remain attractive.
The water crisis in the Western Cape is highlighting a bigger environmental trend that will need to be addressed sooner than most think.
This is according to Gary Palmer, chief executive of Paragon Lending Solutions, who says that while Cape Town residents are now fairly used to carting water from their water tanks or showers to their toilets, the rest of the country is not far behind when it comes to facing uncertain water security.
After reassessing its magnitude and severity, the national government has declared the drought a national disaster in three provinces, including the area around Cape Town. However, the impact of our water scarcity goes far beyond the current low rainfall cycle, says Palmer.
“The most obvious impact will be the effect on the price of water. If the government wants to build the new water infrastructure we so desperately need, it will first have to find the funds. And it has. The Department of Water and Sanitation has gazetted a draft of the revised water-pricing strategy that will see users subsidising the cost of municipal delivery through increased tariffs. Although no clarity exists on how significant the tariffs and charges will be, analysts agree that in the current economic climate, it will place additional strain on businesses.”
For property owners, Palmer says this will add complexity to their relationships with their tenants. Simply passing on the costs to tenants or arbitrarily making provision for additional increases will not endear them to their tenants.
Similarly, property funds which own shopping malls will need to think carefully about how they will protect their tenants from the vagaries of water price uncertainty.
“We have already seen a number of centres which have turned to green technologies to lower their exposure to municipal supply.”
Paragon’s many property partners have already seen a slowdown in residential sales in Cape Town and an increase in sales in Durban. Buyers are reticent about the future of Cape Town, opting for more water-secure coastal towns instead. And, no matter how fickle this may be – Durban is not as water secure as people like to think – perception still drives the market.
“Traditional lenders are beginning to question developers about how they plan to deal with the situation. Landlords are even starting to change their leases to accommodate unforeseen increases, but this is not endearing them to their already price-sensitive tenants. This is exacerbated when many complexes and flats have no way to measure independent dwelling usage and the price hikes are seen as unfair – which could discourage potential tenants.”
More forward-thinking developers are placing a lot of emphasis on sustainability initiatives in new builds. Water-saving designs such as grey-water recycling, rain-water harvesting and, where possible, desalination of available water, goes a long way to attracting buyers.
Just like the dark days of load shedding, finding ways to ensure water security is fast becoming a prerequisite for developers looking for finance, Palmer says.
“Lenders want to see that everything possible has been done to ensure new developments are not at the mercy of municipal services. Above all, lenders want to be sure that their loans are serviced. This means making the development as marketable as possible.
“Tenants and buyers are actively looking for properties which may not be entirely off-grid, but that can at least meet basic environment practices. Going green is also now viewed as good business practice – and rightly so. In fact, just as was the case with generators during load shedding, lenders are even looking at funding water-saving initiatives and equipment.”
While Capetonians have managed to push back Day Zero to next year, their plight has highlighted the importance of including sustainability in property business models. An increasingly ecologically sensitive customer, as well as lenders looking for economically stable investments, means property professionals can no longer ignore the environmental impact of their development, he adds.
“This will only increase as climate change takes its toll. It makes sense to begin planning for these changes, and finding an investment partner who can help.”