13 Feb Turning Ten in the Terrific Twenties
In today’s rapid-change environment a decade can feel like a lifetime. So much has happened: It has been 10 years since the first iPad was launched; Despite the predictions, the world didn’t end in December 2012; Britain announced it was to exit the EU; and Game of Thrones blasted onto the scene and came to a sad end.
In 2010, Paragon Lending Solutions also launched and has not only grown from a small outfit of [number] employees, but now boasts a book of R [number], and processed R2 billion worth of deals.
As we enter the swinging Twenties, Paragon CEO, Gary Palmer, takes a look at the past decade and discusses just how much the market has changed in 10 short years.
Recovering from the crash
A decade ago, markets were still in recovery mode after the 2008 crash. Investors were, understandably, cautious and the lawmakers responded to consumer anger by tightening up on almost all aspects of financial regulation.
An unintended consequence of the more conservative regulatory environment saw traditional lenders curtailed when it came to lending criteria. But it wasn’t just the regulatory environment that impacted deal financing. Gun-shy banks and other traditional lenders had all but lost their appetite for risk and were particularly leery of the property market.
The net result was that investors were struggling to find institutions who were willing to finance the many attractive opportunities that any market crash leaves in its wake.
Government steps in to kickstart the economy
It wasn’t long after the crash before the SA government realised that it would need to create new vehicles to encourage deal flow and inject new life into the local markets.
The launch of Section 12J in 2009 was a direct intervention from the government to boost the support of small and medium businesses. Companies, trusts and individuals were given tax incentives to invest in VC funds that specialised in SMMEs.
Getting the property sector deals moving again was also a priority and this time legislators turned to 13sex of the Income Tax Act. This gives investors tax write offs of up to 5% on new unit sales. What’s more, the usual 5% reduction for residential units grows to 10% if the units fall into the low-cost housing category. This spurred on developers and bolstered the property ecosystem in an otherwise flat market.
The creation of the Social Housing Regulatory Authority, (SHRA) also stimulates the creation of affordable rental housing and is mandated to keep it stable through various regulatory means.
A new consumer demands a new lifestyle
In the last decade, the rise of a new consumer has had a significant influence on the property market.
By 2015, a steady growth in rates and taxes had already put a serious damper on property ownership. In addition, most Millennials actively shunned property ownership, opting to rent as they embraced a more nomadic lifestyle, facilitated by a remote working culture.
While many focused on the younger generations we also saw a rapidly growing older generation looking for more lifestyle-oriented community living. Developers jumped at the opportunity to deliver mid- to high-end retirement villages that offered frail care and high care facilities onsite.
New uses for available spaces
As always, demand creates supply and over the last several years we saw a spectacular rise in the demand for co-working office space. These hotdesking spaces suited the startup culture which was dominated by the 25 to 40 age group. Conversions of long-lease office space to cater for this was a huge hit during the decade. This included adding more lifestyle aspects to the spaces including gyms, restaurants and bars, all available under one roof.
Market pressures and user demand also saw some new property trends. Underutilized office space was transformed into residential rental units – most especially in the B-grade officer space of certain CBD areas.
As people adapted to new working environments, the demand for storage space kicked up a gear and investors hunted down deals to meet the new demand.
A new way of doing business needs a new way of lending
There is no doubt the last decade saw some grim macro-economic signals. But it also saw the dawn of a new type of lending environment.
Spurred on by a growing digital economy as well as a groundswell in non-binary thinking, the lending market saw the entry of a host of new, non-traditional lenders offering financial products that had never been heard of before.
Not only did we see fintech companies enter the market, but we saw a number of asset managers jump at the opportunity to fund new startups in the space. This was a boon for a lacklustre SMME space, which was struggling to secure traditional loans.
According to a report by SME Finance Forum in 2018 there was a funding gap of $5 trillion between what small and medium businesses needed and what the traditional lenders were prepared to lend them.
Today the non-bank lending market is worth around $52 trillion, a 75% growth since the financial crisis ended.
Looking forward, we can expect this trend to continue. Banks will continue to face regulatory pressure and the market will continue to innovate around restrictions. What we believe, though, is that by partnering with a company like Paragon, you can be sure that we will continue to be at the vanguard of innovation. And, with a network of over 120 financial partners, both traditional and alternate, Paragon is best placed to find you perfect lending solution.