At the time, almost none of the analysts agreed with me,' said Flax recently, 'but it was clear to most of the directors at Spearhead that South Africa would fall in line with the rest of the developed world, where a softer economic situation was setting in with lower interest rates.- and that this would result in the capitalisation rates of the listed property fund companies being greatly strengthened.'
Asked if he feels that this strengthening will continue, Flax said that the latest interest rate cuts and those likely to come within the next year have made borrowings 'dirt cheap'. This, in turn, will ensure that property loan stock companies like Spearhead will be operating in an environment where the positives will definitely outweigh the negatives (a poor economy and stagnant rentals with low escalations and decreased occupancies).
'We think that the prime rate will go as low as 10.5% within the next ten to twelve months,' said Flax. 'This is essential if we are to get the necessary growth rate of 3,5% or higher, without which new employment opportunities simply can't be created. Further growth for property loan stock companies is, therefore, probable, despite the lower demand for space.'
Investors, said Flax, had responded well to the new scenario, with the result that, to take one example, Spearhead shares, which stood at R6 40 in January, had by late July risen to R8.60. What is more, he said, it seems likely that Spearhead's share will strengthen further.
'With most reputable operators able to get money at 2% below prime,' he said, 'the year ahead will be the right time to expand our portfolios. We at Spearhead recognise this - and I have no doubt that others will feel the same.'
The current positive scene, said Flax, was last experienced in South Africa as far back as the mid-70s - but had been evident for some twelve months in the property sectors of most of the developed companies, such as the US, the UK and Australia.
Flax praised the 'innovative actions' of merchant bankers like Corpcapital (who have re-structured the listed vehicles Redefine and Apexhi to capitalise on the latest market forces).
Spearhead itself is now almost certain to go ahead with a R60m industrial and office park in a strategic, fast growing sector of the Cape. Details of this are likely to be announced within the next two to three weeks.