Call for longer terms on commercial bonds

In order for banks to expand their markets and become more profitable, they will have to increase commercial bonds from relatively short periods of usually 10 or 12 years to 15 and 20 years, according to Jason Lee, who heads Rawson Properties’ new commercial franchise division.

"The banks have said openly that they are now looking to expand their markets and to become more profitable. If they extended their commercial bonds to 15-20 years — as they are quite prepared to do in the residential property sector — they would make more money."

Mr Lee says by increasing the length of commercial bonds, banks would attract more investors into this asset class and they would help struggling landlords come through the current difficult times.

He says as a regular peruser of the Sheriff Auctions list, he can testify that commercial property repossessions have been relatively limited despite the difficult economic conditions.

Mr Lee says there is little or no truth in the often-repeated statement that commercial property tends to need more maintenance than residential property.

"These days in almost every case commercial property has a large component of maintenance-free elements such as face brick, resin-bonded floors and aluminium cladding.

"Furthermore, the bank issuing the bond is entitled to reserve the right to inspect the mortgaged property regularly to ensure it is being properly maintained and almost all do this."

Mr Lee says that in talks with SA’s major banks he has heard no valid arguments for short commercial bond periods.

All the banks offered different reasons for the shorter periods, he says, indicating there is no consensus on this matter.

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