It comes as no surprise that the head office of Absa Commercial Property Finance (CPF) is in Fourways, the heartland of sectional title development in Johannesburg.
Not a month goes by without a new townhouse complex or cluster home development going up in the area, as they do in the newer suburbs of most large SA towns and cities. And there is a good chance that many of these projects - at least one in three - is funded by Absa CPF.
The bank is the market leader in the segment, with general manager of commercial property finance Jack Stroucken saying that it has about a 33% share of the residential development market. He attributes the success of the division to its focus on residential business; its skills in providing solutions; and a team of extremely competent consultants. Stroucken estimates the size of the market at between R20bn and R25bn/year; that excludes the fast expanding low-cost housing market, where the bank's share is probably even higher.
WHAT IT MEANS
 Develops 33% of residential market
Higher-density housing more popular
|
The value of Absa CPF's residential book is about R5bn at present but, says Stroucken, a further R7bn of financing is in the pipeline. The division has between 300 and 400 loans on its book, at an average loan size of R15m.
Its client base includes the majority of residential property developers. Absa CPF first made its name in the market soon after its foundation in 2001 when it funded the Oubaai golf estate near Mossel Bay. Other well-known estates have followed, including Pezula in Knysna.
An analysis by Absa economist Jacques du Toit provides empirical evidence to suggest that the growth slowdown in the property market, following the recent spate of interest rate hikes, is likely to be less severe for higher-density housing projects than for the rest of the housing market. "The trend towards higher-density housing is supported by factors such as increasing traffic, congestion and land scarcity, especially in the major urban areas. Against the background of these developments and changed supply and demand conditions for residential property, the popularity of higher-density housing has increased significantly," Du Toit says.
His study finds that in a seven-month period (July 2006 to February 2007) almost 1 100 cluster and sectional title housing developments were under construction, comprising almost 90 000 housing units. Of the bank-funded ones, 31% were financed by Absa CPF, the study shows. Gauteng still accounts for about 45%-50% of all developments, followed by the Western Cape, KwaZulu Natal and the Eastern Cape.
Stroucken says that the division is still seeing strong demand for funding. "The ratio of unit sales to new units that come onto the market hasn't slowed down, which suggests there is still demand in the market," he says.
Stroucken says that much of the current growth is underpinned by the steady growth of the black middle class and is thus shielded to some extent from the recent rise in interest rates.
He also highlights certain geographic regions that are likely to do better than others. These include selected areas in Gauteng, such as Pretoria East and the East Rand, inland coastal areas and the Southern Cape's Garden Route region in particular.
Absa CPF avoids high-risk lending, Stroucken says, and often phases the developments "to take some more risk out of our lending".
Most importantly, he says, the bank works closely with the developers, which gives it a greater understanding of the client's needs. But it also allows Absa to detect potential problems early and, if necessary, take remedial action.
Lending criteria are also varied for different type of developments. For residential estates, such as golf estates for example, Absa often insists on a certain amount of presales of houses before it funds the development. "These developments also have to have a lot of equity because they invariably don't sell that quickly and thus development programmes are usually optimistic," Stroucken says.
Overall, though, "we don't have a bad debt problem in the business. Our staff stay closely involved with the development and, backed by strong research, we tend to pick up the few problems we encounter fairly early", he says.
Though Absa CPF's residential division has grown from scratch in 2002 to market leader in just under six years, Stroucken says the bank can still improve on key aspects of its operations. "Though we generally provide good aftercare service once a deal has been struck, we are looking for quicker turnaround times on project approvals," he says.
