RESEARCH TITLE

The current behavioral trend of the major banks investing in commercial/industrial/retail

real estate in South Africa’s major urban areas

PROBLEM STATEMENT

Banks play a major role in property investment. Traditionally, banks have solely been the
lenders in the industry. There is, however, some evidence that they have begun investing
in property, on a scale as large as institutional investors (pension funds and long term
insurance funds).

The purpose of this dissertation is to ascertain the current trend in terms of behavioral
decision making that banks consider when making the choice to invest either directly or
indirectly into commercial/industrial property.

Cloete (2005) asserts that institutional investors opt for investment into direct property
rather than through the indirect route, which would be the listed property vehicle route.
This includes investment into property unit trusts, property loan stock companies, etc.
The question arises as to whether banks follow this same trend, as they have access to
huge capital. If so, to what extent have they followed this trend and what are their
decisions to invest based on. There is evidence that the majority of investors into listed
property vehicles are institutional investors. What is the trend of the major banks in this
regard?

There are advantages and disadvantages into investing into direct or indirect property
investment. This also need to be looked at critically and the extent to which the banks use
these in their decision making identified. For example, banks in South Africa are
measured in terms of the amount of assets in their books and not profitability. So
investing into indirect property by the use of securitization to increase liquidity might be
viewed by the banks as unacceptable, as even though they make profit quickly, they lose
an asset (usually in the form of a mortgage bond).

RESEARCH QUESTION

“What are the factors that major banks consider when choosing to invest directly or
indirectly into commercial/industrial/retail real estate?”

RESEARCH HYPOTHESIS

Liquidity is the main factor when banks choose to invest either directly or indirectly into
commercial/industrial/retail real estate.

This hypothesis will be tested by questionnaires and possibly interviews which will be
posed at the in-house property practitioners working for the major banks. The format of
these data collection methods above, as to whether they will be structured or unstructured
will have to be based on a more in-depth literature review. An analysis of the results will
be made which should confirm or reject the hypothesis.

RESEARCH RATIONALE AND IMPORTANCE

There is generally very limited information on the nature and behavior of banks investing
in property in South Africa. There is a need for advancement in this area, for the
prospective young practitioner in this field and students alike. In fact, in South Africa,
property is a subject that has an exclusive nature to it. This limits its optimum growth and
this can and must be improved. The investment behavior of banks can influence all
investors into property.

RESEARCH AIM AND OBJECTIVES

The research aim is to identify the criteria used by the major banks when deciding to
invest directly or indirectly in commercial/industrial/retail real estate in South Africa’s
major urban areas.

The objectives are as follows:-

 To assess the advantages and disadvantages of direct and indirect property

investment
 To ascertain how the major banks view securitisation
 To outline the characteristics of direct and indirect property investment
 To ascertain the foremost objectives of banks when investing in property