The more fundamental issue is to what extent this crisis sweeping through many of the world’s major economies has eroded the public’s trust and confidence in their governments – in a hyper-partisan sociopolitical environment – and how long will it take for governments to figure out what must be done to regain that trust and confidence in their policies.

The property sector is the ultimate barometer of economic expectations, as developers and investors alike do not look at hindsight, but put their stock on expectations and confidence. In that vein, South Africa’s property sector is bust, with little or no chance for redemption in at least the medium term. More significantly, we are in the middle of a structural change in the property market, precipitated by the Covid-19 pandemic, that’s likely to make the sector unrecognisable in a few years.

Long before the Covid-19 outbreak, (1) government’s inability to stem corruption, which has dominated public discourse in SA and not new ideas about growth, (2) the country’s structural unemployment problem, which is dragging the country politically to the left, and (3) SA’s ever-worsening fiscal position, which is directly correlated with infrastructure and capital investment, has chipped away at the property sector, already claiming many casualties such as the listed construction sector. 

The pandemic was like Mike Tyson landing a plumb right hook-uppercut combo in the 12th-round against a very tired opponent with wobbly knees. 

SA’s economy, in addition to its internal strife, is also an unwitting passenger in global events that have also played against it. The past few years under Donald Trump has given rise to ongoing nationalism and de-globalisation resulting in a US-China trade war, which remains a global economic headwind. For example in 2018, the United States refused to grant South Africa an exemption on steel and aluminium tariffs and just this month, citing “national security” concerns, the Trump administration imposed additional tariffs on 18 countries including South Africa. 

The world’s major countries will act in their own national interest, at the expense of others. Nothing over the past four years suggests any appetite for a globalist approach that precipitated tremendous growth and wealth creation over the past three decades.

The global property market is going bust. Listed property Reits have breached their loan covenants across the globe while banks struggle to restructure debt and keep their loan books solvent. Property values and listed property shares have declined between 20-70%. 

The world’s major central banks are fuelling another credit bubble,  which could dwarf the 2008/9 financial crisis. The announcement of coronavirus, or Covid-19, by the Chinese government and World Health Organisation about six months after the virus was first identified led to a global investor panic. The US equities markets had the biggest one-day fall in history, in which time the Chinese government-owned banks and institutions bought shares in every listed US-owned multinational and major banking company. It’s been an effective hostile reverse takeover action that caught the Trump administration with its trousers round its ankles. 

The US Federal Reserve quickly responded (having had the emergency response mechanism from the prior credit crisis in place) – by printing trillions of dollars more money and pumping stimulus into the markets, buying up US corporate debt, and more recently buying multinational corporate shares to keep the Nasdaq strong and attractive to US and international investors. The stock market right now has completely decoupled from the real economy with stocks, although being liquid, showing little or no yield, leaving the US most probably heading towards a deep and long depression, dragging the rest of the world with it.

The global economy, including South Africa, is being distorted by so many stopgap policy interventions and market expectations of ongoing extraordinary government support, we have lost sight of the fact that the rising American middle class, which has been the star of America’s – and the world’s  – growth story in recent decades, is being decimated.   

The global slowdown and the Covid-19 pandemic have changed the future of commercial real estate forever. Retail malls now feel more like walking through morgues. The hustle and bustle of high street retail have all but disappeared, as people avoid contact. Restaurants and bars struggle to fill tables and chairs, while hotels are lucky to have 20% occupancies. 

Business travellers and tourists are either unable or unwilling to travel by air until a proven vaccine is available – and experience in South-East Asia in response to previous epidemics like swine flu showed that behaviour usually takes long to normalise. Office blocks have also become ghost buildings, with only 20% of staff members willing/able to go to work. Residential property growth remains sluggish, as many people have lost their businesses, have been retrenched or been put on furlough. Distribution centres remain the exception and are resilient as online retail and distribution are flourishing. 

The global property market is going bust. Listed property Reits have breached their loan covenants across the globe while banks struggle to restructure debt and keep their loan books solvent. Property values and listed property shares have declined between 20-70%. 

The ordinary response to this by banks should be to simply start lending aggressively in order to get the economies’ wheels going again. But this is no longer an option, as stringent regulatory and compliance issues adopted from the 2008 crisis have prevented them from doing so. Liquidity ratios are also under pressure because of loan defaults across the spectrum. Every business, other than online tech and convenience supermarkets are in significant trouble or are in the process of going broke. 

Another response would be for governments to build massive infrastructure projects which will last a full decade. Many governments, including in South Africa, can’t do this because their debt is junk and the issuance of bonds to the market would be too expensive. Tax collection is also in the doldrums because of the weak global economy and Covid-19. 

There is an old saying: “when there’s blood on the streets, buy property!”

I’m not so sure any more. In order for property to thrive, the economy must be in positive growth mode or able to turn from recession into an up-cycle of growth. And this is really the underlying factor. The global economy was in trouble before the Covid-19 pandemic.

But, I still see opportunity and the global pandemic will be a catalyst for many new technologies, attitudes and social shifts that otherwise might have taken decades to materialise.  There will now be a total reset. 

The property industry has been subject to significant change through digital disruption from platforms like Airbnb, WeWorks, Amazon and Alibaba that have changed the hotel, residential, office and retail markets forever. No-one could read where it would all end. That is, until the pandemic hit and people had to start thinking out of the box. The property sector is poised for change. And change is what everyone now realises was desperately needed. 

In South Africa, I see significant opportunity for vacant office buildings being converted into residential and creative mixed-use environments spaces, which will alleviate the pressure on housing, road and rail infrastructure, and bring people closer to their workplace. 

Nothing has given me more joy than being involved in brick-and-mortar developments like Melrose Arch and many others, but for any property developer worth his salt, one needs to adapt and move on.   

Hotels which can no longer compete against Airbnb can be converted into residential micro-studio apartments. The really big issue facing institutions, banks and fund managers is what to do with regional and super-regional malls in South Africa, where we have the second-highest amount of retail malls in the world and into which investors have employed massive capital. We are facing a retail apocalypse, on the back of a very weak economy, online retail, and boring retail offerings. Retailers are also scaling down their “hard footprints”, with a global trend to reduce their leased space by at least 50%. 

This is a challenge that I’ve decided to take head-on. I see the collapse of brick and mortar retail as the greatest challenge of my business career, but a challenge I’ve decided will be worth every second. I want to grab these boring monoliths and turn them into something far more exciting.  

The pandemic is fundamentally and rapidly changing human behaviour and attitudes, which is likely to result in the community once again becoming the focal point of social and work activity. 

Property at the heart of a suburb or node is where the future is.  

Over the next few years, I will be investing significantly into projects that transform communities into “smart micro-cities”, with mixed-use communities, and towers jutting into the sky filled with smart, futuristic apartments. I envisage artificial intelligence, technology, music, entertainment and indoor vertical farming and harvesting water from the air all becoming the new normal.   

I foresee drones, air taxis and driverless cars taking the place of traditional cars, buses and taxis. But most of all, I see an opportunity for jobs, innovation and smart investment. Something South Africa and many other places need right now. I see key issues like housing, education, healthcare, safety and security all being accommodated in these smart micro-cities, in the greater plan. But most of all, I see people and communities coming together and rebuilding their lives. Better, smarter and more inclusive lives. The start of a better South Africa, a more futuristic South Africa for all. A full reset and a better world for all. And today, these technologies and this vision are within our grasp.  

Nothing has given me more joy than being involved in brick-and-mortar developments like Melrose Arch and many others, but for any property developer worth his salt, one needs to adapt and move on.  

Despite all the challenges cited above, during lockdown our group became a major seed investor in an international Venture Capital Fund, building specialised tech apps containing AI that has yielded a 22X return in six months – as the world looks for smaller tech solutions to traditional problems.  

In addition, we have started building YieldKing, a real estate app platform selling e-shares in more resilient blue-chip investment properties in the Top 10 Global Cities, using blockchain technology that gives investors almost instant liquidity. This is an alternative to low bank deposit rates in developed and emerging markets. 

Finally, our new business, Mettamorpha Advisors – an international advisory unit comprising 27 of the most creative property,  tech industry, and thought leaders in a number of different disciplines, advising institutional and listed owners of regional, super-regional and mega malls – is focusing all its efforts on redeveloping assets into our envisaged smart micro-cities of the future, both in SA and abroad. BM/DM

*Ed’s note: Maverick Trust is not related in any way to Daily Maverick.