There’s No Time like the Tough Times to Invest for Growth

There’s No Time like the Tough Times to Invest for Growth

South Africans that are waiting for the tough times to pass before they continue to invest in the country are missing out, as the current economic climate is the perfect time to invest for future growth.

This is according to Marc Wachsberger, Founder and Managing Director of The Capital Hotels and Apartments, who established the first of the group’s 10 apartment hotels during the 2008 global economic crisis.
“At the moment, South Africa’s economy is at its weakest, and no job summits or investment indabas are going to change the fact that the world’s economies operate in seven-year cycles and if you panic, you are just part of the cycle ,” he says.

“Add the globally pessimistic view of emerging markets to the mix, along with South Africa’s notoriety as a business-unfriendly investment destination, and many would think that now is the time to divest, or at the very least to stall on existing portfolios.

“I believe the opposite to be true. Now is the perfect time to firm up foundations through investment and expansion and add momentum to growth. This year we opened The Capital On The Park in Sandton and we’ll be opening The Capital Melrose in early 2019, which is testament to how we made a success of our business during the current economic challenges. Our plan is to open two new properties every year and to grow our footprint across South Africa, despite what happens in the future. “

The Capital group has typically purchased properties during downturns in the market, because it’s at this time that the gap between property owners’ expectations of their properties’ value and their real value close. This means that properties can be purchased for real value, rather than the inflated prices that are typical of booming markets.

“When times are good, everybody invests in creating new assets, leading to an oversupply, which then leads to a downturn in the market when supply exceeds demand,” Wachsberger explains. “In the property industry, that oversupply takes time to work through the system, with property owners insisting on over-pricing in an attempt to prolong the market upswing. They do that until the tough times caused by oversupply really hit, which is when the expectation gap closes, and properties are available for more realistic prices.”

It’s not just investing when the price is right that’s essential – taking a pragmatic view of market volatility is important too, no matter how optimistic you are about the future.
“Our philosophy is to protect the downside first and watch the upside second,” he says. “Any investment carries risk, and you’ve got to plan for the best and worst case scenarios. It’s normal to plan for a growth in value and yields, but you need to anticipate how your business would respond if value and yield decreased due to unexpected events in the market, and whether your business has capacity to ride out the storm of unexpected market conditions.”

The debate around expropriation of land without compensation is an example of such unexpected market conditions, and Wachsberger emphasizes his confidence in the constitution despite the challenges around the issue.

“The Capital group will be investing, growing and hiring in the coming months, taking advantage of other organisations’ reluctance to do so in the current climate,” he says. “This means that we’ll be able to access solid investments and employ staff who have a growth mindset, equipping us really well to take advantage of the upswing we anticipate after the 2019 elections, when we hope for a more business-friendly environment that is sure to emerge out of political certainty.

Source: The Capital




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