No rush to Modderfontein is likely

Plans are underway to go ahead with a huge development on land in Modderfontein. Image: Lily Kuo QZ

While the plans by the Hong Kong-listed company to build a financial hub with residential, commercial, light industrial and retail components will undoubtedly deliver a significant financial and employment injection into the local economy, the enthusiasm by some stakeholders and commentators regarding the potential for the new Modderfontein development to result in massive global property investment interest is, to my mind, somewhat misguided.

The Modderfontein project is certainly a good opportunity, and the combination of prime land that is ripe for development and an obvious commitment by a global investor with the necessary financial clout, means the project has every chance to be hugely successful.

That said, however, against the backdrop of the economic climate and the recent announcement by the government on its proposed land policy to limit foreign ownership, it is unlikely that Shanghai Zendai's entry into the country signals any type of rush in terms of large foreign investment into SA's commercial and industrial property markets in the short term.

My bearishness in this regard is primarily due to a simple combination of economic reality and basic practicality. Ultimately, the main driver of any property development in any country is the economy.

Without evidence of sustainable economic growth, development and investment will always be pedestrian at best. Given that this is the case in SA, the project was unique in that it did not come about as a result of any economic fundamentals, but was rather facilitated primarily by the availability of ideally located development land and the timeous interest of a global property player.

On the practical front, there are few, if any, other pieces of viable land of a similar size and development capacity available in SA. This fact, combined with a less than favourable economic climate and the land reform proposal, means there is little likelihood that SA will attract the same level of global property investment interest in the near future.

Source: Business Day