Author Archives: Matthew Campaigne Scott

Datacentre REITs Take Off

Datacentre

Datacentre

Demand for datacentre space has grown as more companies are using cloud-based data storage. Growth in Internet traffic and smartphone usage, including mobile apps and online video, is also driving demand. Datacentre REITs are currently performing well and are popular among investors who are attracted by their high dividend pay-outs as well as by growing demand for datacentre real estate.

The sector became overbuilt during the dot.com bubble and suffered when the bubble burst and demand dried up. The strength of the sector could push other datacentre companies to go public or adopt the REIT format. One example of this is Equinox a company operating datacentres for the likes of AT&T and Amazon.

REIT watches, REIT Café, recently drew attention to three particularly strong datacentre REITs:

• CoreSite Realty (COR), with market capitalization of $580 million, is most similar to CONE. COR is the smallest datacentre REIT, but its stock value has increased 33% since the end of October, and its dividend yield measures 3.6%.

• Digital Realty Trust (DLR) is the largest of the three data centre REITs with market capitalization of about $8.4 billion. Its stock value increased more than 16% since the end of October, and its dividend yield is 4.1%.

• DuPont Fabros Technology (DFT), with market capitalization of $1.5 billion, is the second largest data centre REIT. Its stock value grew 14.8% since the end of October, and its dividend yield measures 3.3%.

“This combination of low leverage and adequate liquidity places datacentre REITs in a good position to take advantage of acquisition and development opportunities that are in the best interest of the company,” said Jim Stevens, an analyst with SNL Financial. The data centre sector could double in size in the next few years, according to Stevens.

Exciting news concerns a new kid on the block CyrusOne (CONE). CyrusOne has raised $313.5 million when it sold 16.5 million shares at $19 on January, 18th. CyrusOne hails from Texas with 24 data centres in Texas and Ohio. The company is 72% owned by Cincinnati Bell, therefore bringing the total market capitalization to around $1.3 billion. Cyrus One has performed well during its first week. By Thursday, January 24th, shares of CONE were up more than 15% to $22.01. Cincinnati Bell, who purchased the company in 2010 for $525 million, will make a significant profit from the sale.

Notwithstanding on-going growth in the data centre industry, the sector faces increased competition, as firms like CONE show up on the doorstep and existing REITs look to grow. The increased competition could effect future expansion opportunities and result in lower returns. Although oversupply hasn’t emerged yet, investors ought to caution on the side of future overbuilding.

Cromwell and Redefine Raise Funds in Australia

Cromwell Property Group has announced on the Australian Stock Exchange that it was undertaking an equity capital raising of up to A$163 million to seed a new unlisted property trust, reduce debt and provide additional working capital.

Cromwell has two key business units which focus on property investment activities; from equity and capital raising to property management and leasing.

Redefine Properties International Limited, the JSE-listed holding company of UK-based Redefine International, has made it clear that it plans to participate in and sub-underwrite a capital raising of up to A$163m by Cromwell Property Group.

Redefine is internationally diversified through its direct interest in ASX-listed Cromwell Property Group and JSE-listed Redefine Properties International Limited, which has a 71,7% stake in LSE-listed subsidiary Redefine International.  Redefine Properties, in turn, owns 54% of Redefine Properties International.

Cromwell subscribed for A$40 million worth of new securities in the capital raising. The placement was subject to a sub-underwriting commitment from Redefine Australian Investments Limited (the Company’s 100% owned subsidiary) for which it received a cash fee of A$800,000.

Redefine’s current shareholding in Cromwell is 321.5 million securities or 22.84% (31 August 2012: 22.08%).

A$16m had been advanced to the Box Hill Trust to enable it to acquire a proposed development site for a new 20 floor Australian Tax Office building in Melbourne. This in keeping with Redefines objective to increase its presence in the Australian property market.

The capital raising was being undertaken by way of underwritten institutional placements of new Cromwell stapled securities and a non-underwritten security purchase plan to eligible Cromwell security holders.

Cromwell looks to acquire properties producing stable income and capital growth through trying to pick markets with the most potential over rolling 3-5 year periods. The Group also creates and manages unlisted property funds which are mainly invested in by retail investors.

Redefine Restructures its VBG Portfolio

Redefine International

Redefine International

Redefine is sticking with its strategic business objectives to realign and enhance the overall quality of its core property assets by restructuring all four of its VBG assets.

In line with its strategic business objectives, Redefine has started disposing of non-core properties and replacing them by acquiring large, well-located high-grade investment properties that are intended to expand and enhance the earning capacity of the prime properties in its portfolio.

In an interim Management Statement, Redefine Chairman Greg Clarke highlighted the successful raising of capital and how it had addressed many of the company’s legacy debt issues as well as positioning the firm into an acquisition phase. It is reported that 94 million pounds have been invested to date. The restructuring of all four of Redefine’s VBG assets is now complete.

Menora Mivtachim and Redefine are 50/50 partners. Menora Mivtachim, one of Israel’s largest finance and insurance groups, acquired the VBG portfolio as part of a joint venture. The portfolio comprises four office properties located in Ludwigsburg , Berlin, Dresden and Bergisch-Gladbach with approx. 44,000 sqm of space let under long term leases to the main tenant Verwaltungs-Berufsgenossenschaft (VBG), a public accident insurance institution.

The transaction was performed with the support of Cushman & Wakefield (C&W) who advised Redefine International on the restructuring and identified the joint venture partner as part of a structured bidding process. The portfolio was burdened with liabilities which were securitised in 2007 in the form of commercial mortgage-backed securities (CMBS).

As part of the restructuring, Redefine International sold a nominal amount of 49% of shares of the holding company to Menora Mivtachim and a further 2% to a private investor and increased its equity base. The investor consortium acquired DG Hyp as a new equity provider. At the same time, Redefine International and the newly formed consortium negotiated with the credit administrator and creditor special servicers regarding details of the credit restructuring and the disposal of the portfolio.

Greg Clarke

Greg Clarke Chairman of Redefine International

After completing a purchase agreement, the properties were sold to anew property company subsidiaries for a net amount of 80 million Euros. The proceeds from the sale enabled the restructured CMBS financing to be repaid.

Redefine also announced the acquisition of a recently developed retail property in Hückelhoven, Germany. The property was acquired through the Group’s jointly controlled entity RI Menora German Holdings representing the fourth acquisition in the joint venture with the Menora Mivtachim Group. The property has a value of €11.6 million and has a non-recourse senior debt facility of €7.9 million secured against it from Bayerische Landesbank.

Greg Clarke, Chairman of Redefine International, commented: “The period under review has been transformative for the Company… into a more proactive acquisition phase which will lay the foundations for the future delivery of shareholder value.”

Serviced and Virtual Offices Take Off in Kenya

Kenyan Offices

Kenyan Offices

Back in 2005 a UK expat, Alexander Andrewes, set up a business in Kenya dealing in interactive media services. Having scoured office space in the capital Nairobi for serviced offices he came up empty handed. That didn’t stop Andrewes who now heads up Eden Square Business Centre (ESBC) a business he started that is the leader in the field of serviced and virtual offices in Nairobi.

Back in the beginning Andrewes was looking for a firm that provided serviced offices, meeting rooms, virtual office packages and administrative support. He told HowWeMadeItInAfrica in an interview that what he wanted back in 2005 was the convenience of walking into an office that is fully serviced, complete with furniture, internet, telephone networks and other administrative services.

As an entrepreneur Andrewes quickly spotted the gap in the market and acquired financing to the tune of US$150 000 with which he launched ESBC. In April 2006 he procured 14 offices at the Eden Square building the Nairobi Westlands and was open for business. All the client needs is his/her own computer when moving in, everything else is taken care of right down to the teaspoons.

On the Virtual Office side of the business, companies that are not in a position to handle huge overheads can acquire offices too. These clients are set up with a fully functioning office, though only at agreed time slots.

Both types of clients are freed the burden of water, electricity, security and other administrative aspects of running a business. This frees them up to focus more on the main core of their business.  Andrewes told HowWeMadeItInAfrica that they had seen small entrepreneurs that started at ESBC with virtual offices, move on to serviced offices and eventually relocated to their own office premises.

But it was not all roses in the beginning. Andrewes explains that at the initial start-up property owners were reluctant to lease to him, selling the serviced office concept to locals was a heavy task. From humble beginnings ESBC now have 180 office units in five locations with plans for a further two locations.

The ESBC client portfolio has grown to over 200, comprising big corporates, non-governmental organisations (NGOs), as well as small business start-ups. Some of ESBCs former and current clients include, Grey Marketing Limited, the Louis Berger Group ,General Motors, Rockefeller Foundation, Google, General Electric and Ericsson.

Now there are other players in the market who have cottoned on to the whole serviced and virtual office concept. But Andrewes seems unfazed by the competition. He reckons the market is big enough. In fact the growth in the industry has affirmed the necessity for it which is good for business as the office community is becoming conditioned to the need for such a market.

The grass doesn’t grow under Andrewes feet though. His plans for ESBC is to provide a service offering financial and strategy business advice to start-ups, NGOs and international firms opening branches in Kenya for the first time. He has his eyes on Uganda and Tanzania next. So watch this space.

Basel3 – As Basel 3 Relaxes will Property Funds Grow?

6679ae72-bff7-4f42-b13d-3448ce5e570c_453122_EN_BaselIIIIf South African banks save on costs following a decision by the international banking authorities to ease global banking liquidity standards, will listed property funds benefit? The short answer is that nobody is speculating, but what of Basel 3 in general and its effect on African real estate.

In short local and global banks have been told by the Basel Committee on Banking Supervision to raise capital levels, as a buffer against losses and unexpected shocks to their business.

It has been expected that costs will increase especially for longer term products e.g. mortgage products, which would see individuals finding it more expensive to acquire homes. Banks would require larger deposits before providing mortgage loans, and coupled with the fact that the savings rate among individuals in South Africa has always been at low levels, would mean that fewer individuals would be able to afford properties. This would have an adverse impact on the property market, with lower demand for properties likely to cause further downward pressure on property prices and thence property funds in a market still trying to recover from the effects of the 2008 credit crunch.

So Basel 3 — the most stringent of regulations enacted on local and global banks since WW2 and which comes into effect this year — will have a huge effect on real estate funding for investors and developers moving into Africa, so says Standard Bank head of real estate for Africa Fergus Mackintosh in an interview with Business Day.

Mackintosh said his biggest concern is the effect the implementation of Basil 3 would have on debt-funding requirements, especially for investors and developers moving into Africa. “There are going to be huge changes in terms of funding requirements from the banks and the reality is that investors and developers would need to come up with a lot of their own equity and have good partners and deep pockets,” he said.

However, this week saw announcements that international banking authorities will ease global banking liquidity standards. Following the 2008-09 financial crisis, the Basel Committee on Banking Supervision developed a “liquidity coverage ratio” to ensure banks had enough unencumbered, high-quality liquid assets to survive a 30-day stress scenario. However, the Basel committee this week endorsed a package of amendments to its requirements. The committee said the liquidity coverage ratio “will be introduced as planned on January 1 2015 but banks will be given up until January 2019 to meet all the standards”.

In short this means South African banks’ need for a liquidity facility is reduced. The knock on cost savings to banks is welcome. How this will affect property funds is up for much speculation. One point of discussion is an increased general confidence in the sector is expected. Investors feel more comfortable knowing the banks have less pressure placed on them by Basel 3.

Some analysts believe that aggressive regulation risked inhibiting economic growth and a consequent tightening of purse strings for property funds, as some banks raised concern that this could push up the cost of lending. So will relaxing of regulations see a drop in the cost of lending, property funds could benefit in this regard? Watch this space.

Do you want to invest in Westville? – You should!

University of Natal - Westville

University of Natal – Westville

Given the green leafy suburb label associated with Westville one may not consider it a node for commercial property, well that’s just not true.

Westville businesses can be found in prestigious office parks across the area. Westville’s commercial properties are in demand and its shopping malls are frequented by shoppers across the greater Durban area and beyond.

Westville is located approximately 13km west inland from the city centre of Durban. With the M13 running through it, Westville is on the route of the world-famous Comrades Marathon between Durban and Pietermaritzburg. Traffic flows steadily through the area which is bound by the N3 and M19 highways making Westville easily accessible for commuters based in Durban, as well as those from the southern and northern regions. This serves to make it a popular base for corporates that service these regions. Westville offers good infrastructure such as shopping malls, top schools, university, sporting facilities and medical services.

A decentralised hub west of Durban, Westville was named after Sir Martin West, Lieutenant-Governor of Natal in the mid-19th Century. Originally a farming area, his farm was transformed into this upmarket residential area, which has expanded and developed into a commercial market.

From a business perspective Westville is an established area that hosts long term tenants. Commercial and retail space is in high demand, especially due to the convenient accessibility to the Durban central business district and surrounds.

Pavillion Mall

Pavillion Mall

The Westville area has a mix of retail and office properties. There are three notable shopping centres, namely The Pavilion Mall at 119 000m², second only in size to Gateway in the Durban area, Westville Mall at 12 793m² and the relatively recently completed Westwood Mall at 34 940m².

One can neatly divide up Westville into four distinctive commercial zones: Westway Office Park, beside the N3; Derby Downs, north of the M13; Essex Terrace between the M19 and the N3 and Westville Central. If one was asked for the zone that stands out it would have to be Westway Office Park – it is in very high demand due to its proximity to the super-regional Pavilion Shopping Centre, accessible public transport and high visibility from the N3.

Featured in a recent Broll Report, Westway Office Park is a fine example of the strides commercial property is making in the area. When complete the office park will release 19 000sqm of AAA office space, highly visible to the N3. There is a parking ratio of five bays to 100sqm of space. Even small retailers are to be included with a coffee shop and a landscaped park.

Westside

Westway Office Park

According to Broll research, rentals have risen consistently achieving a high of R130/m² toward the start of 2010. In the second half of 2010 rentals fell to R120/m² and are holding steady at this price. Vacancies achieved highs of 19% in 2005 and then fell to 6% at the end of 2005. Since then, vacancies have swung back and forth, falling to 0% in the second half of 2007 before climbing to a current 9%.

In short, Westville commercial property demand, sales and supply are up. Space in demand is between 120-600sqm. Highest rentals are pegging at R135 per sqm; medium rentals at R100 per sqm and the lowest are at R75 per sqm. The scope for growth is real and demand is being met. [Stat Source: Broll]

Kenyan Retail and Property Sectors are Alive and Buzzing


IF
Kenya’s property industry is seeing unprecedented growth. Retail and office space is in very high demand. Foreign investors and local business are seeking out and snapping up opportunities across the country especially in Nairobi. But there are challenges as well as rewards.

Players in the construction and property industries refer to last year as a year of equilibrium in demand and supply. Though there was a reported slowing down toward the end of last year in anticipation of the elections. Looking back to 2007/2008 elections where there was violence, foreign capital stayed away and is eyeing the situation this time around with caution.

Those watching the property/development sector are doing so with interest in the extraordinary amount of international companies moving into the country. This naturally results in a greater demand for buildings.

A saying has emerged: “everyone in Kenya has become a real estate expert.” So looking for skilled advice is a little more challenging. This is where Actis owned Mentor Management comes in. In an interview with HowWeMadeItInAfrica, James Hoddell, chief executive explained that to his mind there are very few competitors in this market, at least those who do the full development and project management. “We are experiencing a real estate boom that is set to continue for years.” People are realising that you can’t just build whatever you feel like and sell or rent it.

Nairobi Business Park

Nairobi Business Park

Mentor Management has two notable developments currently on the table. One is the Garden City development. Upon completion it will be the largest mall in East Africa. It includes residential units, a public auditorium, a hotel and offices.  The other is Nairobi Business Park, which has a substantial waiting list. Hoddell is at pains to point out that projects like these are bringing in much needed foreign capital.

Foreign retailers in particular are sitting up and taking notice. Last year Mentor signed the first unit for Massmart in Kenya that will employ several hundred people. They are currently touring South Africa and Dubai to meet retailers winning them over to Kenya. Retail is a big growth area in Kenya.

It’s clear that the expanding population coupled with the growing economy is driving this property boom. If there weren’t tenants for these buildings, no one would be building them. Hoddell points out that for 20 years there was inadequate availability of property, there was very little development and the economy had stalled. But now, there is a renewed impetus in re-starting the economy. There is growth in Indian and Chinese investment as well as other international money, like the Actis fund.

“This is a relatively cost effective market to operate in. It is a cheap country to build in; it has a developed construction industry with developed sets of consultants and a functioning real estate market, which a lot of African countries don’t have.” Says James Hoddell.

One challenge faced by developers is the acquisition of land is becoming punitively expensive. The expectation of owners some may argue is unrealistically high.  It gets to a point where profitability is reduced such that it is not worth developing. This despite the rise of rentals.  Regardless the property and retail sectors in Kenya are alive with the sound of investment.
[Main Source HowWeMadeItInAfrica]

Serviced Offices are Booming, Why?

Corner_Suite2
Serviced offices are among the fastest growing sectors in global property today. The rate for growth over the past few years, despite the global economy, is impressive. With the growing market of serviced office space has come many questions. What type of business would make use of serviced offices and what practical reasons are there for changing to a serviced office environment?
A major difference between serviced offices and traditional offices, which is one of the main reasons for deciding to use them, is the length of the lease. A serviced office lease may be as short as 3 months, or more typically 6, 9 or 12 months. This is very different from the long lease normally associated with a traditional office and gives many organisations the much needed flexibility to shrink or expand as their business dictates.

But, some may say, more importantly, serviced Offices are a total solution in the sense that they are fully fitted and furnished, ready for immediate occupation. The Serviced Office Operator should take responsibility for all of the services to the building, and in addition provide a range of business services including reception and telephone answering services, secretarial support, conference and meeting facilities, video conferencing, networking and high speed internet access.

officeAlthough costs may seem high at first glance, the rent that you pay includes almost all of the costs that you would normally expect to pay on top of rent in a regular office. There are no additional costs for business rates, air conditioning, lighting & power, security, cleaning, building & plant maintenance, lifts, insurance etc. The only additional costs, on top of rent, are for telephone/internet usage, extra rooms if you use them, charged by the hour.

Similarly there are no charges for furniture. Operators often compete offering the latest workstations with chairs, filing systems and tables for meeting rooms. This is usually a weighty cost for any occupier and is included in the serviced office rent.

One may well enquire as to what type of company is using serviced offices. Many new, but not necessarily small, businesses cannot accurately predict their headcount figures over a two or three year time span. These companies take flexible leases in serviced office buildings where they will be able to take additional space when it is needed. A traditional office may feature in the next stage of their property strategy, but for the time being they don’t want large overheads with high set up costs. Flexibility is one of the key drivers that persuade an organisation to use serviced offices.

Of course there are also many firms that have chosen to reduce their exposure to property. Real estate often consumesBoardroom capital and time that could be better invested in a company’s core business. Serviced offices virtually eliminate real estate capital expenditure and leave property management stresses to the property owners.

So it seems that there are some distinct advantages for many a firm to switch to serviced offices.

But one must consider a few niggles that come up with regard to serviced offices: Shared facilities may not be available when you need them. Also, it is difficult to exert personal and corporate style to the office space because serviced offices can be rather uniform than distinctive. Some office buildings come fully branded, meaning they have their own over-door and internal signage, making it obvious that companies are residing in a shared, rented business building or office park. Although some offices do come totally unbranded so that companies can give the impression of owning their own space.

Finally rental costs may be more expensive over the long-term for larger companies with >30 staff if you don’t need to make frequent office changes.

The Latest from the US on E-commerce effect on ‘Bricks and Mortar’ Shopping Centres

1-1258209737k5bGSouth African commercial property trends may differ in some respects to the US, but we still take many cues from that influential country and South African trends are certainly affected by American ebbs and flows. No less so in the realm of e-commerce shopping’s influence on how we build our retail centres.

It’s undeniable, for some time online shopping has had both a complimentary and supplementary influence on the retail industry. E-commerce has altered how consumers shop and retailers do business. The knock-on effect has been an influence on how stores are designed and a long term transformation of how retails centres are built.

But what about right now, do shopping trends confirm or deny the shift, what could be coming our way here in South Africa? Well if the 2012’s holiday shopping is anything to go by; it’s more of the same. Abigail Rosenbaum, senior economist for CBRE reports that online sales are on track to outperform brick-and-mortar holiday sales for the fourth year in a row.

Rosenbaum reports that “Taking core retail sales (total sales, ex auto and ex gas) as a gauge for brick-and-mortar sales, a performance comparison against online retailers shows e-commerce’s impact to be undeniable.” It seems that consumers are ‘choosing sides’ if you will. Outside of a two-quarter span during the recession, e-commerce sales growth has consistently beaten core sales. And the momentum seems to be in e-commerce’ favour. As of the last data point (Q3), growth was 17.3%—its best rate since 2011Q1. Core retail sales growth, on the other hand, has decelerated to around 4%, its lowest rate in several quarters.

According to ICSC, sales growth among chain stores went into the red in November (down 0.1% compared to one year ago). According to ShopperTrak, sales at brick and mortar stores decreased by 1.8% on the day after Thanksgiving (a high watermark for US shopping). However, IBM saw online sales on that same day increase by 20.7%, which seems to indicate that consumers favoured shopping online on the day after Thanksgiving.

NRF’s Stores Magazine, consumers’ 10 favourite online retailers are 1. Amazon.com, 2.Walmart.com, 3.eBay.com, 4.BestBuy.com, 5.Kohls.com, 6.JCPenney.com, 7.Target.com, 8. Macys.com, 9.Sears.com, 10.Google.com.

So, you may ask, how is this strong e-commerce performance translating into changes at retail centres—specifically with regard to their development?  As Rosenbaum has looked at the pipeline of projects currently under construction or in the phases of planning or final planning, she has picked up a discernible trend. It seems there are a significant number of examples of retailers announcing reductions in the size of stores due to the increasing popularity of sales growth, but the trend seems to extend to shopping centres as well.

In the US smaller centres tend to be anchored by a grocer or smaller convenience-stores, and tend to comprise of tenants whose focus is on daily necessities, not unlike South Africa. The retailers of daily necessities tend to be more resilient to the impact of online shopping; between 1999 and 2010, e-commerce’s share of food and beverage sales in the US  climbed from 0.1% to 0.4% while clothing climbed from 0.8% to 14.6%.

On-line retail sales are continuing to improve and strengthen, not only in the US but here in South Africa too. Rosenbaum believes the trend is here to stay.

Consumers are recognizing the opportuneness and the more robust inventory of shopping online. It seems that certain retailers, grocery stores and other daily necessities stores, for example, are somewhat invulnerable, though no retail should consider itself immune. These tenants and the centres that accommodate them appear to be the current focus of retail centre developers. Brick-and-mortar retail is certainly not vanishing due to increases in online retail, but some changes are coming; retailers and retail centre developers are adjusting to focus on smaller store formats and centres that are more resistant to e-commerce expansion. It will be interesting to see if/when these trends are taken up by South Africa shopping centre designers, if not already.

This last Christmas, whilst shopping for CDs/DVDs, like I have done for years, yes I’ve been slow to buy music online; I noticed the amount of CD/DVD shops closing had increased, yet further. Even bookshops are fewer, scaled down and not as important as they used to be. However, it’s more likely that we should look in the direction of how retail centres are designed and refurbished as influenced by e-commerce rather than trembling at the prospect of vacancies increasing. On-line shopping is making its mark and will not be ignored. It seems it will change how we build not whether we build shopping centres.

Disaster Recovery Offering Value to Office Parks

server-rack2013 is set to be a year when disaster recovery will be a principle feather in the cap of office parks wanting to add value to their office space products. This trend is scoring big business among leaders in the field.

So says managing director of property development and marketing company, Abacus Divisions, Org Geldenhuys. He points out those office parks like multi-billion rand Route 21 Corporate Park in Irene and Highveld TechnoPark in Centurion are prime examples of disaster recovery locations.

Geldenhuys says that Route 21 “offers redundant fibre optics and is well geared from a technology point of view. We are noticing an increase in tenants who are looking to house disaster recovery sites for their clients.” Such value added qualities lead tenants to see this as a way of reducing capital spend.

It’s clear that there is a trend among landlords to think smarter offering what could be argued as a full-service approach including shared networks and telephone infrastructure.

Geldenhuys also explained that in some instances there are even server rooms and sophisticated security that is available for sharing. Ancillary services such as generators are also increasingly available to apportion.

Given the austere financial circumstance business finds itself in right now, multinationals and other corporates are itching for something more for their trouble than just conventional same-old, same-old that’s been offered by many landlords up till now. It seems that disaster recovery, for many, is scratching the itch.

 

Crowdfunding – Will South African Real Estate Bite

Crowdfunding

Crowdfunding

Is it possible that investors will second guess putting their cash into Real Estate Investment Trusts (REITs) in favour of Crowdfunding? Why hasn’t South Africa got a Real Estate Crowdfunding platform? Shouldn’t someone be considering it?

It may seem unlikely that anyone will waver in favour of Crowdfundings whilst pondering investing in REITs right now, especially in South Africa since no such option exists, but already in the US, Real Estate Crowdfunding platforms have emerged. For instance, Fundrise was founded by Ben and Dan Miller, who spent the last few years building up a booming commercial real estate business. Frustrated with Wall Street investors, the brothers decided to build Fundrise to democratize the process of investing in commercial real estate.

Given the novelty of Crowdfunding many remain in the dark. According to Wikipedia Crowdfunding, or hyper funding “describes the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations.” Crowdfunding is utilised widely to fund blogs, political campaigns, scientific research, start-up companies, music, the arts, as well as so called Angel Investing and now even real estate.

Ben Miller of Fundrise: “We felt that the private equity funds we looked to raise money from typically had no natural connection to the neighbourhood buildings we were developing,” So the brothers cut out the traditional middlemen and created the opportunity for direct investment. Now Ben says they believe that Fundrise “provides a platform that can revolutionize who influences neighbourhood development by giving the general public the opportunity to invest in and own local real estate and businesses.”

Forbes estimates that annual Crowdfunding transactions go as high as $500 billion annually compared to 2011’s $1.5 billion (anticipated to be $3 billion in 2012).  If Crowdfunding even begins to approach that scale, it will completely change the landscape for start-up financing.

To get one’s head around the concept of Crowdfunding a trip back in time may be required. Wiki describes Crowdfunding as having an historical antecedent in the 18th century idea of subscription. Back in the day many artists and writers found it difficult to find publishers for their books, and instead persuaded large numbers of wealthy benefactors to ‘subscribe’ in advance to their production.

Marillion

Marillion

Today Rock groups like Marillion and Electric Eel shock have funded tours and albums using Crowdfunding platforms. Independent films are booming thanks to raising funds with Crowdfunding.

In essence Crowdfunding is a form of “Micro patronage”, a system in which the public directly supports the work of others, donating via the Internet. This is as opposed to traditional patronage now many “patrons” can donate small amounts, rather than a small number of patrons making larger contributions.

Sticking with our example, how does Fundrise work? The first offering on the site allows users to buy shares in 1351 H Street NE , a restaurant location on the booming H Street Corridor in Washington DC. The building is leased to Maketto that combines a Japanese-themed culinary “night market” with a clothing boutique for DURKL, a popular DC-based street-wear company. By investing in the project, you get a portion of the 10 year lease proceeds (projected to be 8.4% year), a portion of the profits of Maketto, and a portion of the future appreciation of the building.

Allen Gannett of TNW explains about Fundrise thus: a $100 share qualifies you for Kick-starter-style rewards, as well as access to shareholder events and parties. For $1000, you get a 10% discount on all food purchases and DURKL clothes and for $10,000, you get an annual dinner prepared by their chef. By combining economic rewards with Kick-starter-style benefits, Maketto gains a population of customers who are literally invested in its success. Ben explained that “by giving the neighbourhood and potential customers the opportunity to become your partner, Fundrise creates a whole new form of brand loyalty.

Other African countries are emerging as if Crowdfunding was designed for Africa. Countries long considered on the periphery of the world economy are benefiting. “We want to get Africans into the crowdfunding space to invest in Africa’s own start-ups,” said Munyaradzi Chiura, head of GrowVC’s Africa operations in Harare, Zimbabwe to Crowdsourcing.org. “Crowdfunding is particularly suited to the African context because the amounts are small, thereby reducing the risk, and investors are not going it alone.” Projects in which “anyone can invest” could receive backing from outside Africa.

South Africa’s has an important Crowdfunding platform in Crowdinvest. Investing with the businesses it backs may allow unusual rewards: investors in a film, for example, would get walk-on roles or on-screen credits. On the other hand, it also offers more conventional schemes, with investors in small firms and start-ups getting a share of the profits or of the company’s ownership. It runs checks on any business wanting to register: “It’s not open to anyone to upload a pitch,” said CEO and founder Anton Breytenbach.  Crowdinvest returns the funds to users if the full amount sought isn’t raised, after which the project will shut down.

Barak Obama

Barak Obama

Considering that the US leads the way in so much, it’s worth noting that this year, President Barack Obama signed the JOBS (Jumpstart Our Business Start-ups) Act; this piece of legislation effectively lifted a previous ban against public solicitation for private companies raising funds. As of August 13, 2012, the Securities Exchange Commission has yet to set rules in place regarding equity Crowdfunding campaigns involving unaccredited investors for private companies; however, rules are expected to be set by January 1, 2013. Currently, the JOBS Act allows accredited investors to invest in equity Crowdfunding campaigns. In South Africa no such legal framework has been ventured and so far no one has challenged existing legislation that may impede the growth of Crowdfunding.

Considering the ups and downs, one has to look favourably on Crowdfunding in that it allows good ideas which do not fit the pattern required by conventional financiers to break through and attract funds through the ‘wisdom’ of the crowd. Proponents also identify a potential outcome of Crowdfunding as an exponential increase in available venture capital. On the down side, business is required to disclose the idea for which funding is sought in public at a very early stage. This exposes the marketer of the idea to the risk of the idea being copied and developed ahead of them by better-financed competitors.

So is there someone in South Africa ready to take on Crowdfunded real estate? It may not hold the lofty promise of creating high growth tech companies, but it does offer people the chance to own a piece of their neighbourhood. “Its social innovation meets investing” says Ben Miller of Fundrise. He believes that Crowdfunded real estate is providing a means for community member’s access to collaborative investment, while becoming part owners of the spaces and people they support. We could do with some of that in South Africa. Right?

Eskom Under Fire in Cape Town and Beyond

Courtesy Engineering News

Courtesy Engineering News

We’ve just seen credit ratings agency Fitch downgrade the ratings and outlooks of two of the country’s most significant state-owned enterprises, Eskom and Transnet. This as business, the City of Cape Town, trade unions and a host of civil society organisations opposed Eskom’s request for an average annual increase of 16 per cent over five years at Nersa’s hearings on Eskom’s tariff application.

The Cape Town Chamber of Commerce made damning statements about Eskom’s management stating that its fundamental thought processes were flawed and outdated. It put up front that “the proposed increases are unaffordable and will have a devastating effect on the economy and small business in particular.”

The chamber expressed what it called “grave” concerns about the management of Eskom. “We believe that maintenance was neglected in the good years to improve the bottom line and we are now paying the price for this in an expensive catch-up operation.”

In terms of the government’s electricity pricing policy, Eskom was required to revalue its assets by a multiplier of five so that it could generate sufficient cash flow. Its desired rate of return would be calculated on these revalued assets. This, together with the use of depreciation replacement cost of accounting, meant the provision for depreciation has soared from R10bn in Multi Year Price Determination2 (MYPD2) to R43bn at the end of the next five years. Nersa allows Eskom’s tariff to cover its operational costs, which include depreciation.

A number of business and other parties have postulated that there was something very flawed in Eskom generating profits for its sole shareholder, the Government. There is a broad body of thought that believes that Eskom, as a utility company, should operate on a non-profit basis in the interests of the country and the Government should be content with its VAT income from electricity sales.

Another issue the Cape Chamber took with Eskom was the policy of keeping electricity flowing to the domestic market whilst cutting or rationing supplies to major industrial customers such as the mines and through buy-back schemes. The point made that since mines and industry are the backbone of the country they should have preferential treatment. Of course rationing electricity to the domestic market would be very unpopular politically.

Other issues raised were: the alleged abuse by municipalities in the passing on of Eskom tariff increases to the consumer; under investing in electrical infrastructure and 13 reasons why gas powered power stations are superior to coal.  This in the light of world-class gas discoveries off the coast of Mozambique and Tanzania.

What’s interesting to note is Eskom’s regarding gas as unimportant. By contrast the National Development Plan produced by Minister Trevor Manuel and Cyril Ramaphosa does see gas as very important and a more affordable alternative to Nuclear power.

On matters of depreciation of Eskom’s assets, other parties made their voices heard: City of Cape Town director of electricity Les Rencontre told the hearing that Eskom’s revaluation of assets and its use of depreciated replacement cost had added R64bn, or over 2 per cent, to the depreciation charge. He urged that the “adjustment” in the value of the assets be disallowed as it added to the increase in tariffs.

Business day quotes Independent Democrats-Democratic Alliance (DA) MP Lance Greyling as saying that the return on equity and depreciation costs reportedly comprised 34 per cent of the “unreasonable” tariff increase applied for and should be “thoroughly interrogated”.

On a more populist note the National Consumer Forum branded Eskom a “parasitic institution” for wanting to increase the price of electricity by 16 per cent, and suggested that electricity be tax-free like brown bread and milk.

Liz McDaid of the Southern African Faith Communities’ Environment Institute criticised the power utility for prioritising its revenue over service delivery.eskom

In short Eskom’s proposal, if accepted, is for a five-year determination for MYPD3 to ensure a predictable, longer-term price structure.  The increase would take the price of electricity from 61 cents a kilowatt hour in 2012/13 to 128 cents a kWh in 2017/18 – more than doubling the price over five years.

The Cape Argus reports  Eskom chief executive officer Brian Dames and chief financial officer Paul O’Flaherty on Tuesday told the hearings the application supported investment by independent power producers and by Eskom. An average annual increase of 13 per cent is intended to meet Eskom’s needs over five years, plus 3 per cent to introduce new independent power producers. Eskom boss Brian Dames told Nersa he believes the company has struck an optimal balance.

The hearings are continuing around the country.

 

 

Oh Wither are we Bound?

fghjklRemember those old printer’s trays that young girls, mostly, now a little older, used to put on their bedroom walls filled with the most hideous useless junk. I think the trays then moved to more sumptuous parts of the home and became centre pieces for more ornate and tasteful knick-knacks as the girls grew up. If you have printers trays in the house you now know what to buy for Christmas at the end of this year and if you were the recipient of some irksome little trinkets last Christmas, you know where you can put them now.

Well, as a pre-Christmas chore I found myself chipping and scouring away the layers of paint, especially from the corners, from my daughter’s printers trays that she inherited from my wife, that she had as a teenager back in the, never-mind. Clearly instead of their beautiful virgin wood, paint was applied with whimsy and little skill to the trays as often as a new fashionable colour got their attention. Alas the burden of restoration is a heavy one. If you find yourself being asked if you think the current colour of the printer’s trays is suitable, whatever you do gush madly at its beauty in order to avoid hard labour.

This got me thinking about when I was a library prefect at King Edward VII School. I had an unorthodox and engaging library master called Mr Sandom. He encouraged us to read all manner of works from the classics to the then, recently in vogue, fantasy literature.

Just before the Christmas holidays Mr Sandom took us library geeks, as we would be called today I suspect, to the then arty-farty suburb of Melville where we visited a house with a ye-olde genuine printing press, cabinets with draws similar to the printer’s trays that people used to put up on their walls in the 80’s. They were full of letters, numbers, punctuation, and many other characters, as well as space blocks.

We all got into the spirit of the occasion and learned from the Mr Sandom how to create a page that we would print and place into our hardcover books that we had manufactured out of old maps as Christmas gifts the previous week. I distinctly remember that I had Iceland on the back and Nyasaland on the front. We didn’t just learn the rudimentaries of what it took to create a page of text the manual way we came away with a sense of achievement that a print out from our state-of-the art dot-matrix couldn’t do for us.

Which causes one to reflect, wither are we bound? Elsewhere in this magazine you will have read that inkjet technology exists that can produce droplets smaller than bacteria. Talk about sending the ‘flu a message. Then some Japanese guy had the bright idea while putting on his deodorant one morning: “if inkjet printing is just firing liquid at a surface why not spay stuff with perfume and other smells.” So maybe you’ll receive Christmas card smelling of roast turkey. And to think we got all excited in the 80’s about scratch-n-smell.

Whether it was yesterday, today or tomorrow, in the printing world higher and higher resolution seems to be that holy grail or fleeting horizon, reaching ever further, to working harder to produce clearer and better images and text, faster and faster, with less and less, in narrower and smaller spaces, cheaper and cheaper, with fewer and fewer people, using the fewer calories and lower wages, during reduced hours and….okay I’ll stops now.

Confronting the Slumlords – Jo’burg Innercity Renewal

Johannesburg_HillView_2colJohannesburg ‘s inner-city is continually in the news as a place to invest in property despite the crime and grime factors at play, the City claims to have attracted R9billion in investment into the restoration of derelict buildings. With organisations like Joshco and TUHF making strides in seeing buildings restored and viable for investment one has to ask what’s being done by the City to push back the forces of decrepitude that bedevil so many of its high rise buildings.

Enter the multi-disciplinary task force that has been given the task of the seeing the inner city restored and the criminal elements ejected. On the team are the South African Revenue Service (SARS), the Johannesburg Emergency Management Services, the National Prosecutions Authority (NPA), the SAPS as well as the Metro Police.

The-Vinuchi-building-cnr-of-end-and-kerk-streets-in-the-Joburg-cbd-is-one-of-many-buidlings-that had been-taken-over: Herbert Matimba New Age.

The-Vinuchi-building-cnr-of-end-and-kerk-streets-in-the-Joburg-cbd-is-one-of-many-buidlings-that had been-taken-over: Herbert Matimba New Age.

Thirty-six properties have been restored to their rightful owners since the team began its work. But it’s not all rosy, alas a thousand building are reportedly in the hands of hijackers.  This defrauds the City of revenue from rates and taxes, pushing up costs for potential property investors.

It’s specifically on this point that culprits have been pinned down. Previously police charged building hijackers with minor offences such as trespassing and intimidation. Unfortunately complainants were informed that it was a civil matter and that they could not be helped. But with the establishment of the task team, offences related to building hijacking – which is not a crime on its own – include the more serious charges of fraud and tax evasion.

Regrettably this is a process of three steps forward, two steps backward. Since the restoration of 36 buildings restored to rightful owners seven have been re-hijacked. This is blamed on not having the resources to guard all the buildings.

William Pudikabekwa

William Pudikabekwa

Looking at the broader picture, according to William Pudikabekwa, manager of properties and investigation in the council’s development planning and urban management department:  “But from when we started, when Joburg was a ghost town, I think there has been a turnaround in that to date more than 2 000 hijacked bad buildings [this precedes the work of the task force apparently]  have been given back to their rightful owners. I am seeing the changes happening now in the inner city since we started with this process.” He said in an interview with the Saturday Star.

The Johannesburg website announced last month that the task team had arrested 50 slumlords and reclaimed 50 bad buildings from hijacking syndicates, there seems to be a lack of continuity with regards to numbers. Louis Geldenhuys, the head of the City’s Legal and Special Investigative Unit  is reported to have said that his unit had in some cases reached an agreement with the rightful owners, who had since signed compliance agreements.

PArks

Parks Tau

Recently Executive Mayer Parks Tau did a tour of the inner city. Tau and his colleagues wanted to see for themselves the challenges in Berea, Joubert Park, Yeoville, Bertrams, Fairview and Jeppestown. They visited hijacked and abandoned buildings and overcrowded houses, all of which are connected to illegal electricity supply.

In one instance, more than a dozen people were found living in a tiny shack without running water or ablution facilities. They told the delegation that they paid R200 each for electricity and that they were not aware they were living illegally. This revealing some of the challenges faced by the task team.

There are an estimated 22 000 buildings in the Jo’burg inner city. Some are the very picture of sophistication, others are in a deep state of dereliction. However it’s clear that getting from one end to the other has required hard work and high risk for the private sector. But the block by block recovery of the inner-city’s buildings from criminal elements is going to require the on-going dedication of the multi-disciplinary task force the City of Johannesburg has assembled to fulfil this heavy task.

Kodak Yesterday, Lexmark Today what of Inkjet Tomorrow

It’s a mistake to think Lexmark’s ditching of inkjet printers is some kind of portent for the inkjet and allied industries. Industrial inkjet technology is booming and its future uses are broadening.

Kodak1The year began with the announcement by Eastman Kodak that they would file for bankruptcy. Kodak which was synonymous with the world of photography had become a force in the printing market too. So it’s been a heads up for those in the industry to hear of Kodak’s cutbacks.

Before filing for bankruptcy, Kodak had already started to close factories and photo labs. It has laid off employees, declaring an end to the production of video and digital cameras and photo frames. Kodak had planned to sell off 1,000 of its patents to raise funds but has postponed the sale indefinitely and may set up a new company which will license the technology to generate revenue. Kodak is now officially out of the inkjet printer market, however press releases state that it will continue to supply ink for its legacy inkjet customers.

download (1)In the wake of this, came the news that Kentucky based Lexmark will stop making inkjet printers, focusing instead on laser printers, which are used predominantly in businesses. The decision will lead to a factory closure in the Philippines by the end of 2015. Combined with other job cuts, Lexmark will get rid of 1,700 jobs worldwide according the Washington Post.

Intriguingly shares of the company rose on the news, jumping over 15 per cent for a high of $22.75 on Wall Street as investors welcomed the news that the company would get out of what some have called a faltering consumer inkjet printer market. Lexmark’s division that included inkjet printers and supplies fell 35 per cent compared with the same period last year. This compared to 9 per cent decline for its laser and business inkjet division. Unlike Kodak, Lexmark is still planning to stay in the printer business just not the inkjet business.

How much of this has to do with a specific decline in the desktop inkjet printer market and how much is to do with big companies weakening at the knees in the current economic climate is uncertain. What is certain is that Kodak and Lexmark are sacrificing inkjets to save their business. In Kodak’s case, as part of jettisoning a bulk of its other business interests.

Of some concern for consumers is the closure of Lexmark’s cartridge manufacturing facility in the Philippines  by the end of 2015. All development work on inkjet printing is also to be ceased, with all equipment and stock sold off. Conversely, in the short term, Lexmark’s exit from the inkjet market could spell savings for consumers: as the company sheds its stock, expect to see Lexmark-brand inkjet printers being sold at considerable discounts. While the closure of its official consumables plant could prove troublesome, compatible cartridges from third-party manufacturers should remain available for some time yet.

The Washington Post quoted from Paul Rooke, Lexmark chairman and chief executive officer, in a company statement that: “today’s announcement represents difficult decisions, which are necessary to drive improved profitability and significant savings, our investments are focused on higher value imaging and software solutions, and we believe the synergies between imaging and the emerging software elements of our business will continue to drive growth across the organization.”

The decision to pull out of the consumer inkjet market may be symptomatic of an on-going change in this sector. Comments on the blogs reflect that, while we’re taking and sharing more photos than ever before, most of them never get printed. Smartphones and tablets are changing the market as people can now easily keep stored documents on hand, obviating the need to print.

Also on the blogs are inkjet printers complaints about the cost of the ink – one often reads phrases like “a set of inks costs more than the printer” or “by volume, printer ink is more expensive than vintage champagne”. Of course there are reasons for this, however the fact remains that people are becoming resistant to paying for their printed photos among other things. Not that inkjets are just about photos. However despite having the ability to be a paperless society for decades, we insist on having hardcopy in our hands for far more than we would like to believe.

Of course when one speaks of inkjet there’s a whole world out there besides desktop printers that most office workers would not be familiar with. The industrial inkjet printing market was valued at $33.4 billion in 2011 and forecast to grow to $67.3 billion by 2017, according to Smithers Pira, the worldwide authority on the packaging, print and paper supply chains.

According to a study by the Smithers Pira see (http://www.smitherspira.com/future-of-inkjet-printing-to-2017.aspx) inkjet is growing because it provides significant advantages across many supply chains. This inherent flexibility has attracted the attention of many leading print equipment suppliers and they have invested a great deal of money to develop new printing systems, much more than in any other printing technology.

As one might expect, inkjet printing is used for printing on paper and card in a wide variety of scenarios, including printing product labels, packaging, and paper media, but inkjet technology is also applied to printing tasks that many are unaware of.

To be precise Inkjet printing technology is the digitally controlled placement of small drops of liquid onto a surface, and it works just as well with dyes as inks. Inkjet printing on textiles is widely used in the fabrics industry. Inkjet printing is also frequently used for printing onto glass and ceramics to create decorative tiles and other interior decorating and architectural objects.

A recent study from Smithers Pira reveals that with recent and coming advances in inkjet technology, the global market value for inkjet printing is expected to more than double in the next five years, and the proportion of printing tasks utilising inkjet printing as opposed to other methods is set to increase from 4 per cent to 7 per cent of the market value of the printing industry.

Solar cells are an important part of building a sustainable energy infrastructure, and by using inkjet technology to lay down the components onto a substrate, photovoltaics can be produced more quickly and cheaply. Using inkjet printing techniques is significantly more efficient than traditional methods, and reduces wastage of expensive and environmentally-damaging chemical components by 90 per cent.

Quo vadis you may ask. What about tomorrow? Digital nanoprinting uses newly developed technology to produce droplets that are much tinier than ever before, tinier than bacteria. Using drops these results in radically more precise and high-resolution images. Scent Printing: Since inkjet printing is basically just shooting fluids at a surface, there’s no reason they have to be inks or dyes. Japanese scientists have been working on printers that can print long-lasting scents onto documents. Soon the rose on your Valentine’s card really might smell as sweet. Pharmaceuticals:  Many people have to take carefully-dosed regimens of multiple medications and precise times during the day. Imagine if instead they could take exact, personally-tailored combinations and doses printed onto one pill with inkjet technology. (Sources: InkSplash and InkTech.com)

We’ve come a long way since the daisy wheels and dot-matrix. We’re now in the world of speedy and precise memjet printing and the like. Richard Remano VP of Technology and Solutions for Netherlands based Oce says that his company has been a toner based firm up until now and they have switched to being an inkjet based firm to take on the future. (see  Interview  at http://whattheythink.com/video/51850-oces-view-future-inkjet/) Inkjet’s future looks bright from here.

African Growth: Competitive Investment and at What Price?

Courtesy - The Economist

Courtesy – The Economist

Africa for so long a collective of querulous bankruptcies and killing fields has seen its coffers increasing and democratic advances reaping peace and prosperity.  The International Monetary Fund predicts sub-Saharan Africa growing at 5.4 per cent this year compared to 1.4 per cent for developed economies.

Africa’s is home to some of the world’s fastest growing economies and rapidly rising disposable incomes. A decade of relative political stability has also helped the case for African investment.

New investors come expecting bargains because the continent is still seen as poor. However investors looking to buy into future growth are now paying a premium due to sellers savvy to opportunities being fewer and further between.

Sub-Saharan Africa’s attractiveness as an investment destination has risen to fifth place in 2012 from seventh in 2011, according to a survey by the Emerging Markets Private Equity Association. Opportunities traditionally existed in mining but speakers at Reuters Africa Investment Summit in September have pointed to consumer and banking services sectors as the next big thing.

Africa’s largest telecoms operator MTN is a perfect example of a company that paid what was considered a weighty price at the time, for the right to commence operations in Nigeria 11 years ago. It paid $285 million for a mobile license, now it has over 41 million subscribers and banked revenues of 34.9 billion rand ($4.47 billion) in 2011.

Actis, a private equity firm in emerging markets, said it was recently outbid in a North African deal by a trade buyer that offered 12 times EBITDA (Earnings before interest, taxes, depreciation and…). Valuations on the continent are, however, cheap compared with price demands in bigger emerging economies in Asia. Speaking to Reuters, John van Wyk, the firm’s co-head for the region said: “Valuations, depending on the sector, can be quite high but … compare that to the 16 times EBITDA multiple you are being asked for in India or China, that’s kind of stratospheric stuff.” “We are quite bullish about the continent but Africa doesn’t come without its challenges,” van Wyk said.

It seems that it is not unusual for new investors on the continent to make the mistake of coming with preconceived ideas of where valuations should be.

The world’s biggest retailer Wal-Mart bought a majority stake in South Africa’s Massmart for $2.4 billion in 2011, a 19 per cent premium to the 30-day volume weighted average price. With that has come a great deal of political and legal manoeuvring that remains to be finalised.

Even where companies are willing to pay a premium for a good target, companies of the right size are hard to come by. Every big African brewer, for example, has been nailed down, according to SABMiller’s head for the region, Mark Bowman. “No one is getting anything for a reasonable price any more; you are paying for a future opportunity a significant premium. Anything that would become available would be aggressively priced and one would have to take a view if it’s worth it,” he told Reuters. Diageo, consumer goods companies with a portfolio of world-famous drinks brands, dug up a heavy $225 million for an Ethiopian state brewery last year, months after Heineken paid $163 million for two other beer makers in that country.

Emerging Capital Partners is opening an office in Nairobi, its seventh office on the continent, to grab east African opportunities. Alex-Handrah Aime, a director of the Africa-focused ECapitalP: believes that one way of bridging the valuation gap is for buyers to start with a convertible bond, instead of taking up equity at the onset. Private equity firms need to avoid auctions to keep a lid on valuations, she told Reuters. “It’s a competitive process. If you end up in an auction situation … the person who pays the most is going to win. That’s not necessarily the valuation that is going to be most sensible.”

Some investors have turned their backs on what they see as inflated prices. South Africa’s second-largest banking group First Rand dropped its bid for Nigeria’s Sterling Bank last year after the two disagreed on price.

Interestingly Middle East investors, though slow to join the fray, are competing for investment opportunities on the continent. Not short of oily billions and short of investment opportunities in the developed world, Africa is looking attractive.

However challenges have been quickly recognised. One is the relatively small size of potential deals. “The Middle Eastern sovereign wealth funds are very interested in Africa, the challenge that they face is the increment at which they need to invest is way too large for the continent at the moment,” Diana Layfield, Africa chief executive at Britain’s Standard Chartered Plc. told Reuters in an interview on the side-lines of the World Economic Forum on Africa.

“Definitely there will be more (investment) coming to Africa,” Saudi Arabian Minister for Agriculture Farad Balghunaim told Reuters. “With the clear vision that is building up in African leadership now, there will be more and more investors from Saudi Arabia,” he said in Addis Ababa.

However accessing growth is not a given. There is a lack of liquidity in public capital markets. For private equity bankers, there is often a shortage of deals that can meet their mandate when it comes to size. For example, emerging markets private equity firm is reportedly aiming for individual deals of $50 million or more in Africa, meaning it has to focus on the continent’s biggest economies – South Africa, Egypt and Nigeria – to find deals.

Dubai’s Abraaj Capital is in the process of acquiring UK-based private equity firm Aureos Capital, which invests in small and medium-sized businesses in Africa, Latin America and Asia. “We tend to have a sweet spot at around $10 million, but we have investments as low as $2 million and going up to about $35 million,” Davinder Sikand, Aureos’ regional managing partner for Africa told Reuters.

“Our focus has been to build regional champions. So we’ll take positions in businesses that can demonstrate management vision and build (them) out, recognising that each of our markets other than Nigeria and South Africa are fairly small markets, and you need to build that scale.”

Due to the constraints in their home markets, Middle East investors are familiar with Africa’s challenges, such as the poor infrastructure, the shortage of a highly trained workforce and the lack of liquidity in capital markets.

Frederic Sicre, a partner at Abraaj Capital told Reuters: “Behind us are 200 of the wealthiest merchant families, royal families from the Middle East, and sovereign wealth funds from the Middle East. We can pull them in to looking at the infrastructure development space, or the big utility development space, into looking at the opportunities here.”

Clearly the continent has become a far more competitive place than it used to be. Despite many target deals being on the small side for the bigger players, the expected returns are considered reward enough in the long term. Africa, -keep doing what you’re doing and you’ll keep getting what you’re getting. If democratisation continues, peace will abound and prosperity should follow the necessary hard work buoyed by investment.

Burger King Enters the South African Commercial Real Estate Market

Burger-King (1)You may have heard of Grand Parade Investments (GPI) but you have almost certainly heard of Burger King. It’s all about branding. But the fast food business is also all about real estate.

When McDonalds first came to South Africa with their real estate policy, insisting on owning every freehold site, they encounted many obstacles souring their early days in the country. Steers has landed with their proverbial bum in the butter acquiring access to scores of outlet sites at service stations country wide. With arguably most of all the best sites taken up already what will be left for Burger King?

Slot+machines+gambling+casinoIt’s now well publicised that JSE listed Grande Parade Investments has struck a deal with Burger King, (the US’s second biggest Burger fast-food chain after McDonalds) after 18 months of negotiation with the view to the fast-food franchise setting up shop in South Africa. Intriguingly GPI has a long range vision set on the pizza, pasta and chicken market too.

GPI is no stranger to the food franchise market with Cape Town Fish Market and Leonardo’s under its belt.  GPI is known primarily though for its casinos, slot machines and hotels. The first Burger King outlet will open on Adderley Street in Cape Town, around May next year. Initially all the stores will be company owned. The financial side of the deal has not been disclosed. GPI will make a substantial investment in the venture, which will be funded from existing cash resources and new debt. The deal is still subject to the SA Reserve Bank approval. This is required because royalties will flow out of the country.

Hassen+Adams

Hassen Adams of GPI

The competition is very high but Hassen Adams of GPI seems unfazed. MoneyWeb’s Hilton Tarrant asked Adams about sites and whether landlords and property management companies had been calling them? He replied: “I am absolutely gobsmacked by the interest. We said that we would sort of roll out this whole concept in Cape Town very, very conservatively. I can tell you, we are going to have to do it in a very aggressive way. I’ve got the go-ahead from my board to now go full-steam, and I think that we will be rolling out a lot of these Burger Kings much quicker than we anticipated. We obviously are going to start in Cape Town first, then Gauteng and then Durban.”

According to Wikipedia “Burger King derives its income from several sources, including property rental and sales through company owned restaurants.” According to NetLeaseAdvisor, Burger King generates revenues from three sources: retail sales at Company restaurants; franchise revenues and property income from restaurants that BKH leases or subleases to franchisees.

We already know the maxim: location, location, location. So what of the fact that other fast-food chains are way ahead of Burger King in this regard? What does Burger King want in a store? “Burger King’s restaurants are usually free-standing buildings, located on outparcels in shopping centres and on high-traffic urban streets”, says Randy Blankstein, president of the Boulder Group, a net lease brokerage firm based in Northbrook, Illinois, US.

To get really specific, the highly regarded Net Lease advisor rates Burger King as similar to other quick-service hp photosmart 720restaurant (QSR) operators, Burger King prefers locations in high traffic areas with superior access. Accordingly, net lease Burger King properties are usually supported by strong real estate fundamentals. The underlying asset is typically a 278.7sqm building with a drive-thru window, situated on 2023.4sqm to 4046.8sqm of land. It is important to note that Burger King franchises the majority of their locations, while only 15% of Burger King locations are corporate-operated. Therefore, there are a number of various lease agreements and guarantors operating under the Burger King banner. Corporate-backed leases have been trending towards ground leases of 10 – 15 years in length with rent increases of 8% – 10% every 5 years. Franchise guaranteed lease terms vary, as do their respective cap rates based on perceived credit-worthiness of the operator. However, if a site has high quality real estate and strong sales, some leases have been known to offer annual rent increases or percentage rent.
The nearest indication we can get with regard to Burger King’s intentions are, real-estate-wise here in South Africa, is Adam’s answer to a question about the location of outlets. “We will find the right sites. But also we have 400 slot-machine outlets, (mostly in pubs), and this creates opportunities. Why go the quick service route? In those sites we can create a Burger King that is a hole in the wall. You need to be creative.” It seems quite an ingenious move to piggy back the roll out of Burger Kings through the already tried and tested market of GPIs slot-machine outlets.

china-burger-king-2009-12-2-6-40-21But it won’t end there if Burger King’s move into China is anything to go by. A recent article in Business Journal about Burger King Worldwide, opening 1,000 new restaurants in China offers a bullish insight into the future of the commercial real estate market in the People’s Republic.

That Burger King Worldwide is moving into China in such a massive manner is bullish for the commercial real estate in the country for a variety of factors.  The most obvious is that there will now be 1,000 pieces of commercial real estate in China that will have a Burger King restaurant as a new tenant. The commercial real estate market in China can only benefit from that development.

Also of significance is that Beijing is welcoming new businesses into the country. That will only increase the demand for both residential and commercial real estate in China. This new demand from foreign investors, by the basic laws of supply and demand, will raise property prices in China both in the commercial real estate sector and market for homes in the People’s Republic. These same principles apply in South Africa. If Burger King is coming to town this is an encouragement for other foreign direct investment in South Africa in general and in commercial real estate in particular.

So we wait with baited breath to find out what GPI and Burger King plan for South Africa’s roll out. The 400 slots outlets are not quite the same since no purchase of land is taking place but when the foot is in the door, given Burger King’s record, it shan’t be long before real estate is being bought up.

BurgerKingSo how stable is Burger King you may ask? Well to start with the company has a ‘B2’ rating with Moody’s’ – judged as being speculative and a high credit risk. By way of comparison McDonalds has an ‘A2’ rating. Standard and Poor rates Burger King ‘B’. An obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments- according to S&P. McDonalds is rated ‘A’.

Net Lease advisor rates Burger King as a solid net lease investment set of properties. “For a non-investment grade net lease tenant, Burger King provides stability in an uncertain market.”  Apart from adding some jobs to the markets and variety to our fast food habits, Burger King seems to have the track record to suggest that a move into South Africa can only be a confidence boost to the commercial property market even if its direct effects are delayed by the strategic embedding of Burger Kings into GPIs slot-machine outlets. Not everyone who wants a burger plays the slots and Burger King knows this. Commercial real estate will have to be purchased for the proposed big roll out in the Cape Town, Gauteng and Durban.

Legal News on the Property Front

Recent legal developments on the property front have been attracting a great deal of attention. From Wendy Mechanic and Renette Block representing the Estate Agent end of the spectrum to Ndlambe Municipality demolishing unapproved residences. Last but not least is a breakdown of the process leading to the new steps recognising women’s property rights.

Wendy Machanik pleads guilty to theft charges

Wendy MachanikThe latest on the , former estate agent Wendy Machanik’s case is that she has pleaded guilty to 90 counts of theft, totalling R27 million, according to a recent report. Another two counts were for failing to keep accountable records of her trust account.

Due to Magistrate Phillip Venter’s concerns about terms of sentence, Machanik would only know her fate next month. Sapa has reported that Venter said she should be sentenced for two counts of contravening the Estate Agency Affairs Act separately from the 90 counts of theft, which are regarded as a common-law crime.

The plea and sentence agreement, however, stipulated that sentencing should take all 92 counts together. The case continues.

Meanwhile Jawitz Properties is taking legal action against its Jeffrey’s Bay franchise owner, Renette Block amid allegation of theft. It is also alleged that there have been misappropriations of funds held in trust and funds paid to the franchise on behalf of their clients.

Herschel Jawitz, CEO of Jawitz Properties says they were alerted to possible irregularities when their head office started receiving complaints at the end of 2011 from property owners who were not being paid their rent, which had been paid to the Jeffrey’s Bay franchise office by tenants.

The group has cancelled the franchise agreement and is seeking a court interdict against Block, preventing her from having any access to the business and the business bank accounts. Jawitz Franchise Systems has also laid criminal charges against the franchise owner Block with the Jeffrey’s Bay police.

In addition, the matter has been reported to the Estate Agency Affairs Board, the industry regulatory body, for further investigation. The EAAB has frozen the franchise’s trust account and if found guilty, Block could have her license revoked. “Our first priority is to our clients and we are doing whatever we can to manage the situation.” Jawitz told IOL.

In Ndlambe Municipality v Lester and Others’ the wall come tumbling down.

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Whether it is erecting a new building, making additions or deviating from the original plan of a house there may be the temptation to think you don’t have to abide by municipal rules.

The court is able to issue a demolition order even if the municipality has granted approval. All due processes are necessary including the neighbour’s approval as in the case mentioned above. This is according to Lanice Steward of Knight Frank Anne Porter who recently reviewed a case in the Smith Tabata Buchanan Boyes newsletter.

In the case of Ndlambe Municipality v Lester and Others, the property owner had his plans submitted and approved by the municipality.  The plan was to build a second, larger building on the property as the one that existed was too small.  The problem that arose is that a second dwelling was actually prohibited by the township conditions and a neighbour, Haslam, objected and applied, successfully, for an interdict against the building going ahead. Lester amended the plans and these (“the 2002 plans”) were also approved.

Lester then decided to proceed with a building that differed from the amended set of plans (things changed and he needed to make provision for his mother to live with him) and submitted another set, which were approved by the municipality but Haslam was never informed of the subsequent changes.

Once the building was almost complete Haslam realised the difference in plans and he brought an application to the review board because the building took away 75% of his sea view. After a series of amendments and re-submissions, which were rejected by Haslam, the last review ended in an order prohibiting the municipality from approving new plans, which meant that the only set approved were the original 2002 plans. As the building was substantially different from these, Haslam applied to the court to have the building demolished.

The court ruled in Haslam’s favour, ordering the building to be demolished, citing Section 21 of the Building Standards Act.

“The court has the discretion to issue a demolition order on a building even if the municipality has approved them, and this shows that all due processes are necessary, the neighbour’s approval in this case being the all-important step that was miss
ed,” says Steward. “There is a question to be asked here though – how did the municipality approve the plans in the first place?”
Recognition of Women’s Property Rights

Female_RoseIn recent court judgements, women’s matrimonial property rights in South Africa were recognised, according to Simphiwe Maphumulo, a director in the property and conveyancing department at Garlicke & Bousfield Inc. (Reported by Property24)

Maphumulo says that back in December 2008 the Constitutional Court delivered a milestone judgment in the case of Gumede v The President of the Republic of South Africa.

In the case the Court declared certain provisions of the Recognition of Customary Marriages Act, 1998 (the Act), inconsistent with the Constitution and invalid insofar as they did not recognise customary marriages entered into before the commencement of the Act.

Recently another matter of similar significance came before the Supreme Court of Appeal, but this time section 7(6) of the Act was under scrutiny.

That section provides that, a husband in a customary marriage who wishes to enter into a further customary marriage after the commencement of the Act must make an application to court to approve a written contract, which will regulate the future matrimonial property system of his marriages.

In this case, Ngwenyama v Mayelane & Another, a subsequent customary marriage had been concluded between the second wife and her deceased husband, but had not been preceded by the required application in terms of section 7(6).

The first wife brought an application in the Pretoria High Court to declare the subsequent marriage null and void on the basis that it lacked compliance with this section.

The High Court agreed with her and held that failure to comply with the mandatory provision of the Act cannot but lead to the invalidity of the subsequent customary marriage.

The second wife (the appellant) then appealed to the Supreme Court of Appeal against that decision and that Court was therefore faced with the task of interpreting the provisions of section 7(6) in light of the reasons provided by the Pretoria High Court in making its order.

Those reasons included a finding that failure to comply with the subsection leads to invalidity of the subsequent further customary marriage because of the peremptory language of section 7(6), i.e. the use of the word “must” and the provisions of section 7(b)(ii) which gives the Court powers to refuse to register a contract.

The High Court’s interpretation is also at odds with the Constitution and the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) to which South Africa is a signatory.

The Appeal Court held that the stated purpose of the Act is to regulate the proprietary consequences of customary marriages and the capacity of spouses of such marriages.

It was also noted that some authors on the topic have concluded that noncompliance with section 7(6) does not lead to the nullity of the customary marriage and that such marriages would be regarded as out of community of property.

The discriminatory interpretation of section 7(6) excluding women in polygamous marriages is deeply injurious to women in such marriages as it adversely affects them in such areas of, inter alia, succession, death or divorce.

The effect also extends to their children who would, by virtue of the disputed interpretation suddenly be rendered illegitimate.

The Appeal Court accordingly upheld the appellant’s appeal and set aside the order of the Pretoria High Court, which had declared her marriage to the deceased null and void.

It was also held by the Supreme Court of Appeal that, the second customary marriage must be out of community of property as it cannot be a marriage in community of property which would imply the existence of two joint estates.

Though a complicated weave, it’s another step forward for South African women’s property rights and for South African law as a whole.

Cape Town – Making the City Work

Cape Town CBD

Cape Town CBD

Cape Town’s CBD, the business hub of the South Africa’s second biggest city, is working hard on its image as a functioning and healthy city centre where things work and business gets done. Investment, infrastructure upgrades and improved systems all reveal a sober and progressive approach to making Cape Town’s heart functional and competitive.

In the last four years the Cape Town CBD has been the target of nearly R5 billion’s worth of upgrades and development. A recent survey commissioned by the city’s Central Improvement District values CBD property at about R22.3 billion.

Recent or current developments in the city include:

Cape Town Convention Centre

Cape Town Convention Centre

The R690 million expansion of the Cape Town International Convention Centre (CTICC) which is in its planning stage. This redevelopment will see the venue double in size. The completion date is set for July 2015.

The R138m Provincial Government building upgrade in Dorp Street is to be completed in July.

The R1.6bn 32 floor (tallest in the CBD) Portside Building between Bree, Mechau, Hans Strijdom and Buitengracht streets. This is an enterprise by FirstRand Bank and Old Mutual Properties aimed at completion in 2014.  The building will be the provincial headquarters of First National Bank, Rand Merchant Bank and Wesbank.

The R32.8mil Civic Centre refurbishment has begun, the completion date is still uncertain.

The R1.4bn Cape Town Station upgrade, phase one is underway and phase two is still in the planning stage. The date for completion is not certain.

Port Side Building

Port Side Building

Ingenuity Property Investments are redeveloping the Atlantic Centre in Christiaan Barnard Street to the tune of R160m and should be completed early 2013.

The R80m development of Touchstone House on the corner of Bree and Mechau Streets is in its planning phase.

The R150m upgrade to Newspaper House in St George’s Mall is to be completed this year.

The Cape Town City Hall is also due for refurbishment. It is estimated that it will take R20 million to upgrade the historic building. A variety of repairs as well as major upgrades to the roof and auditorium are required if the building is to remain functional. The timeline is likely to be between two to three years.

The Cape Argus refers to a “turnaround strategy” that was put into place for the building back in 2009. Since then R4m had been spent on repair projects. This includes R1m to refurbish toilets and R500 000 to restore woodwork. Portions of the ceiling have been repaired, light fittings replaced and walls painted. But major repairs are still required.

Cape Town City Hall

Cape Town City Hall

By way of justification for all this expense, is the offering of City Hall as a nucleus for the city’s arts community. The intention is to position the venue as a location for various creative activities. Clearly this is already the case. Between January and September, more than 70 events were held at the City Hall. The Cape Argus reports that another 40 are planned up until the end of this year. The city has been meeting with the Cape Town Partnership and the arts sector with the view to working on arrangements to secure events until 2015.

From art to infrastructure. Cape Town’s foreshore dead-ends and unfinished freeway are finally to be looked at with a creative eye. The City of Cape Town, with the help of University of Cape Town (UCT) engineering students, is hoping to find a viable design to complete the structures.

Students from the university’s engineering and built environment faculty will be asked for draft innovative design proposals for the incomplete freeway in a way that will improve access to the city. It has remained incomplete for many years due to lack of funding.

Unfinished Flyovers

Unfinished Flyovers

For some they have been a blot on the landscape for others an icon, regardless the unfinished flyovers are to be examined and considered for more constructive use. Proposals include; creating parking beneath them, a museum and even providing viewing spots of the city.  One main focus is on how to use the structures to help ease access to the city centre, and in this way improve working and living conditions for residents.

The project would start in January and the tenders would go out in early 2014. One possibility mooted is for an international consortium to be responsible for the construction work. This would be a long term project that would change the landscape of the city.

CCTV cameras - CBD

CCTV cameras – CBD

There’ s a great deal of attention being paid to crime and grime issues in the CBD too and people seem to be  enjoying their work environment. The aforementioned survey commissioned by the City’s Central Improvement District (CCID) reveals that 82.6 per cent of people feel safe in the streets and eighty-three per cent of businesses also rated the CBD the safest in the country.

The report found that over the past three years property investment in the central city brought in R4.6 billion and a GDP contribution of R1.5bn was generated from events hosted in the city. According to the survey between 2001 and 2010, the residential population in the city had increased by 76 per cent. A further 79.3 per cent of the people interviewed felt the city was clean and orderly while the remainder said cleaning could be improved.

Just over 85 per cent said they felt safe in the city at night and 90 per cent of businesses were satisfied with the overall services of the CCID. The CCID reported that crime rates fell by half in the central city. In social development, the CCID said they were working with 16 social service providers to help homeless people. Evidently of the CCID’s budget of R37.5m, more than half would be spent on safety and security.

Golden Arrow Busses

Golden Arrow Buses

Finally, improved transport is very much in the vision of the city. Cape Town is moving closer to gaining complete control over Cape Town’s public transport operations. It will see the city managing the subsidies of the Golden Arrow Bus Services, which currently fall under the provincial government. In 2011, Golden Arrow Bus Services received a R600 million subsidy. It has more than 1 000 buses on 900 routes across the metro. Now the city is applying to the national government for the contracting authority functions to be taken over by the city.

At the moment, rail services are managed by the national government while the MyCiTi service is city-run. Eventually these will fall under the Transport Authority. Going forward, the goal is a single payment method for all modes of transport. This can be done with the myconnect card. It will also affect scheduling of services, allowing for a shared timetable. The entire integrated public transport system is expected to be complete in the next five to seven years.

Cape Town seems to be focused, industrious and committed, as people in the CBD make their city work.

South Africa is Part of Africa, but will it Take Part in Africa?

The World Bank has likened the doubling of African manufacturing output over the last decade to China’s position thirty years ago. Emerging Markets Investment firm Actis’ real estate director Louis Deppe believes that South African investors who ignore the potential in African markets do so at their own peril.

Ivor Ichikowitz, founder of Paramount Group, a privately owned defence and aerospace company, believes South Africans have looked to Asia and the West for the best ideas and viewed them as their natural competitors, as opposed to our African neighbours.

Louis Deppe of Actis

Louis Deppe told Moneyweb at an Africa Property Investment Summit in Sandton. “You have no choice not to care about Africa. It’s on your doorstep. Some significant economies are going to overtake South Africa in a very short space of time. They’re growing faster and have far more potential to grow.”

An example Deppe probably has in mind would be Ethiopia, their economy is expanding at 7.5% annually and that’s not just traditional industries like mining and agriculture, it’s also manufacturing. An example on the periphery of Addis Ababa is Chinese shoe maker Huajian, which has built a factory employing around 500 workers.

An economist at the World Bank who recently wrote a report on light manufacturing in Africa cites this as an example of how Africa could overtake Asia to potentially become the world’s next manufacturing hub.  Low labour costs, the availability of natural resources, and preferential access (duty-free and quota-free access) to the US and EU markets are all some of the advantages of operating in Africa.

It is predicted that Nigeria, with a growth rate of 7% should overtake South Africa by 2015. Louis Deppe warns that up until now, South Africa, being, arguably, the most democratic and stable country on the continent, has been able to attract foreign direct investment (FDI), often getting the lion’s share compared to other African countries. Once other countries also start fulfilling some basic requirements, this will no longer be the case.

South Africa used to be the gateway to the rest of Africa. If foreign investors wanted to set up and go into Africa, the FDI would come to SA first, before moving up north. This is no longer happening and foreign investors are now moving directly into Africa from China, Europe and the United States.

Nairobi – an “African Tech Hub”

By 2035, the continent’s work force will be greater than any individual state on earth.  Nigeria and Ethiopia will add over 30 million workers by 2020, whereas South Africa is looking at adding 2 million.

However, it’s not just manufacturing that Africa is excelling in and challenging South Africa. The Economist recently (August 2012) named Nairobi an “African tech hub” because of the hundreds of start-ups that have sprung up in the last few years. Kenya’s exports of technology related services have risen from $16m in 2002 to $360m in 2010. It is also a world leader in the adoption of mobile payments technology – and is far ahead of China and India.

According to Ivor Ichikowitz, within a few years Kenya could soon emerge as a world leader in mobile payments and export the technology to countries across the world.

He also refers to the African film industry. The Nigerian movie industry, which has overtaken South Africa’s to become the strongest on the continent worth £500m and producing more films than Hollywood every year. The films may not be international blockbusters, but they have huge appeal across Nigeria and Africa, and prove that Africans have the creativity to compete in non-traditional industries.

Nigerian Movie Industry Worth R6Billion in 2011

Clearly we need to be at least aware of what our neighbours are doing if our market is shrinking or stagnating and the world around us is getting bigger, we risk becoming less relevant in the grand scheme of things. Alas it seems the South African economy is sliding backwards while the rest of the continent is in first gear. Most African markets that Louis Deppe’s Actis group invests in are experiencing 7% GDP growth. “Despite claims of corruption, a lot of that money still filters down into the economy, there’s a lot of economic drive and growth.” he said. He added that on the development side, Actis was getting returns of between 13% and 14%.

But Ivor Ichikowitz has a positive spin on this: “it’s a positive opportunity for us to export our products and knowledge and generally expand trade with other African nations, which in turn will generate jobs for the youth of our country.”

South Africa has some great assets – its infrastructure, mature private sector, well developed services sector, stock exchange – that give us the opportunity to provide a range of goods and services to help grow our own economy, but we can work harder to maximise these advantages.

IVOR ICHIKOWITZ

Ichikowitz says that countries like Ethiopia, Kenya and Nigeria are rushing forward and emerging as serious competitors for destinations of foreign capital.

This is pressuring our government and business leaders to look more closely at their policies and approach to business. The harsh reality is that if South Africa is to retain its position as the leading economy on the continent it can’t for a minute ‘rest on its laurels’.

Ichikowitz doesn’t see South Africa as being in competition with the rest of Africa, but rather in a position to learn from and impart learning to neighbouring states, which is why it is essential that we share technologies and collaborate to build strong regional industries that bolster inter-Africa trade.

Deppe looks more into the nitty-gritty glancing back to what he refers to as a watershed year for property investments in South Africa, 2010, after the World Cup. “We had all these infrastructural projects, the economy had withstood the 2008 global recession. Then suddenly: what’s next in SA? There’s not much left in South Africa, we are a saturated market.” Deppe said by way of illustration that vacancy rates had increased in many shopping centres across the country. As a result, investors’ returns at 7% or 8%, which were not great to begin with, are shrinking and are likely to be impacted further. He said with GDP growth in South Africa being below 3%

New South African Bank Notes

“you’re not even going to get out of the starting blocks. You’re actually going backwards in real terms.”

The troubling dynamic among South Africa investors is their reluctance to invest in Africa stems from an unfounded conservatism. “With the South African base not as strong as it was, it’s forcing people into a mind-set to look abroad. I don’t think they have a choice.” Deppe said.

Hilton Buy-to-Let – Opportunity Knocks

Hilton College, synonymous with the town of Hilton, caught headlines earlier in the year for its announcement that it plans to sell off a substantial bundle of its estate for a housing development.  Since the school claims it’s in no financial difficulty one can’t help feeling if the time is right to invest in the small but prosperous town.

One may ask, ‘what do they know that we don’t’. Hilton’s trustees have made available 100ha of prime land for an exclusive residential estate expected to net at least R90 million when complete. The school spokesman told the press that it all had to do with the school becoming prohibitively expensive at R190 000 a year and how it needed to be more relevant and offer opportunity via bursaries to the previously disadvantaged.

The Gates of Hilton, as the development will be called, is not about charity, it’s about some very wise investing as Hilton sees itself become the target of people moving up the hill from Pietermaritzburg and even Durban. The first 50 sites of The Gates of Hilton have already been made available to those with connections to the school.

Not far away is Ambarlea, an excellent rent-to-buy residential development, more than 40 units of which have recently been sold. Gated communities are so commonplace that they are springing up unnoticed. Ambarlea offers automated access control and palisade perimeter fencing. Hilton has long been regarded as an upmarket residential destination, with a wide range of quality family homes but very little suited to first-timer buyers, investors or retirees. Developments like Ambarlea are offering one and two bedroom apartments, among others. Entry level pricing is at R595k at one bedroom, the two bedroom apartments are priced at R850k. The complex is within walking distance of the village, hence the buy-in from Hilton College parents, young professionals, retirees and investors.

Champagne air and cooler summers lacking the humidity of the coast, spacious properties and abundance of good public and private schools, including Hilton College and St Anne’s, this is a location which is ideal for healthy family living or entertaining in country style. Security is an increasing need among home buyers, which makes the freedom of a village such as Hilton and its low crime profile so desirable.  Houses with large well-kept country gardens on stands of 2000sqm are available as an excellent buy-to-rent opportunity.  Prices range between the R1.4m to R2.5m mark.

With the upgraded Oribi Airport in Pietermaritzburg so easily accessible and today’s advanced technology and connectivity, they are also finding that more residents choose to live in Hilton and commute on business to other areas and regions, including Gauteng. Gateway to the popular Midlands Meander, Hilton is only an hour from the Drakensberg Mountains and 10 minutes from Pietermaritzburg.

Other developments in the Amber –range are Amberglen,  Amber Valley and Amber Ridge offers a range of unit options and pricing within a secure and picturesque environment.  Also on the buy-to-rent list of opportunities is Amber Ridge, the latest of nearby Howick’s popular “Amber” retirement villages. Since its late 2011 launch, 65 of its intended 200 units have been sold, with first occupation having taken place in May 2012. While a separate village in its own right, with its own body corporate, frail care, community centres and wildlife conservation area, it will share these facilities with its neighbour, Amber Valley. In turn, Amber Ridge residents will have reciprocal access to Amber Valley’s facilities, which include a large frail care unit, two heated swimming pools, a library, communal dining room, snooker room, various function rooms, a gymnasium, a pub, Astroturf bowling green, two tennis courts, bass and trout fishing dams, and walks in the designated game estate area.

Hilton is clearly emerging as a property investment magnet with everything from small units, gated communities and grand old homes with bed n’ breakfast potential to retirement accommodation.

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Taking Africa Seriously

Whether it’s private equity firm Actis’ movements in Africa, surprising news about Ugandan oil reserves or South Africa’s PPC cement eyeing Ethiopia, it’s all part of the growing trend to take Africa more seriously.

Actis continues to dig deep and wins an award too.

Actis

Emerging markets private equity firm Actis is looking to invest around $300 million annually in Africa. The firm aims for individual investments of $50 million or more, meaning it focuses on Africa’s biggest economies – South Africa, Egypt and Nigeria for example – where there are more opportunities for bigger deals.

Actis was formed in July 2004, as a spinoff from CDC Group plc (formerly the Commonwealth Development Corporation), an organization established by the UK Government in 1948 to invest in developing economies in Africa, Asia, and the Caribbean. The Actis management team acquired majority ownership of CDC’s emerging markets investment platform.

According to Wikipedia on 1 May 2012 the Secretary of State for International Development, Andrew Mitchell, announced that the state’s remaining 40% stake had been sold to the Actis management for an initial £8m. The deal also included a share of future profits that could be worth over £62m to the UK Government.

Actis Spokesman John Van Wyk a veteran South African private equity banker told Reuters recently “I tell our investors that I think Africa is still probably the best-kept secret because we continue to make superior returns,”

Actis, which has about $1.5 billion deployed in Africa, last year led a $434 million buy-out of South African firm Tracker, which makes vehicle tracking equipment.

A feather in Actis’ cap is that they have won ‘Best Developer in Africa’ in Euromoney’s 8th global real estate survey – official recognition of the private equity firm’s track record in investing in the real estate sector on the continent. Actis launched their first real estate fund in 2006 and focus ‘institutional quality retail and office developments in high growth markets.

Despite its challenges, the real estate sector is growing in popularity for PE funds – Kenyan Britam (recently rebranded from Britak) is planning to include the sector in their targets for their first PE fund.

Ugandan Oil Deposits

Ugandan Oil Deposits 40% greater than expected.

An additional 1bn barrels of oil has been discovered during exploration on Uganda’s oil fields, pushing the figures of commercially viable deposits to at least 3.5bn barrels and pushing Uganda up from 43rd place to 32nd place among the world’s oil producers, just ahead of the UKs North Sea Oil.

Ernest Rubondo, the commissioner for petroleum exploration and production at the ministry of energy and mineral resources, made the announcement in September. The Ugandan Daily Monitor quotes him as saying: “From about two or three wells we have increased our oil barrels to 3.5bn,” Rubondo said. He further disclosed that out of 77 wells drilled so far, 70 have been proven to contain oil and gas.

The Albertine Graben in which oil has been discovered in Uganda is located in the western part of the country, mainly in Masindi, Kibale and Hoima districts.  Unfortunately, according to the energy ministry, production has been hampered by squabbling over contracts and taxes. Infrastructural inadequacies are not helping either.

Enter corruption: three ministers are facing allegations of accepting bribes. The government has not been forthcoming with information about these irregularities and this has just fuelled suspicions of high level corruption.

British explorer Tullow Oil, want commercial exploitation to start immediately, saying it is unreasonable for it to be expected that they hold their capital idle. Howwemadeitinafrica.com confirms reports that Block 1, found on the northern tip of Lake Albert, is operated by a local unit of France’s Total SA, while Block 2 is operated by Tullow Oil. Total entered Uganda’s oil industry early this year after it signed onto a joint venture with China’s CNOOC and took up a third each of Tullow Oil’s exploration assets in the country worth $2.9bn.

The Ugandan government says only about 40% of the Albertine Graben has been explored to date and has stated it will be demanding tougher terms in new oil deals. This tale is far from over.

South Africa’s PPC Cement and the IDC acquire 47% of Ethiopia’s giant Habesha Cement.

PPC cement

Acquiring a 47% share in Habesha Cement Share Company (HCSCo) of Ethiopia, South Africa’s Pretoria Portland Cement Company (PPC), joined hands with South Africa’s Industrial Development Corporation (IDC) in a deal worth US$21million. PPC’s $12m cash injection secured 27% equity in HCSCo, whereas IDC’s $9m secured a 20% equity stake.

PPC is not the only cement company capitalising on the fast growing cement consumption in the region. Dangote Cement of Nigeria and Athi River Mining of Kenya are also competing for market share, reminding South African business that it’s a new kid on the block. PPC’s stated intention is to grow revenue earned outside of South Africa to 50% during the next few years.

According to Imara Africa Securities Team, in addition to the injection from the IDC and PPC, the company secured $86m debt financing from the Development Bank of Ethiopia. The first phase of HCSCo’s plan is a $130m state of the art cement plant with an annual capacity of 1.4m tonnes per annum (mtpa) specifically for the Ethiopian market. The plant’s future development plan includes an option to double the capacity to 2.8 mtpa. The plant, which is currently in the early stages of construction, is located 35km north-west of Addis Ababa. Cement production is planned to commence during the first half of 2014.

Ethiopia

During the initial construction phases, PPC will assist HCSCo by providing operational and technical expertise and with the training of plant personnel at its operations at the PPC Academy in South Africa.

At 85 million, Ethiopia is the second largest country in Africa by population. However the per capita GDP is $354. Worth watching though is that the country’s economic growth rate was at 8.8% in 2011. Ethiopia’s government has launched a 5-year (2010/15), Growth and Transformation Plan (GTP), which is geared towards fostering broad-based development. The scheme seeks to double the GDP and the agricultural production and to increase electricity coverage from 41% to 100% and access to safe water from 68.5% to 98.5%. Since 2003, the government has embarked on a housing reform programme – a modest 11,000 homes have been completed to date providing individual ownership of affordable quality housing. The future market in Ethiopia for construction and thence cement is substantial.
{Sources: Howwemadeitinafrica.com/ Imara Africa Securities Team/ Businessmonitor.com}

Three examples of where Africa is being taken very seriously is a just the tip of the ice berg. There’s more where that came from so watch this space.

Cape Town’s Community Upgrades – bread or cake?

Fairhaven-playground-spray-park Washington

When there are Royal weddings and countries jostle to hold grand sporting events it’s often to distract the people from recessions, wars and scandals. So it’s hard not to be a little cynical about grand gestures by politicians purportedly for the good of the masses. Some would suggest a connection between the ANC youth league’s intention to make Cape Town ungovernable and the latest announcement by the City to spend R132 million on community facilities this municipal financial year.

Perhaps it’s disingenuous of those who may be casting aspersions on the motives of the council and we should all just be grateful that something tangible is in the pipeline for underserviced communities, even if it isn’t infrastructure, housing or education related.

According to Mayoral Committee Member for Community Services, Councillor Tandeka Gqada: “It’s important that residents of all communities have the kind of facilities that ensure an improved and more enjoyable quality of life. We are committed to providing this for the people of the Cape Town municipality and this upgrade plan is just one of the many ways we are doing that” the SA The Good News website reports her saying.

In short the City of Cape Town’s Community Services Directorate is embarking on a series of planned upgrades, with the intention of providing quality recreational and educational services across the City. In total, the upgrades will cost more than R132 million over the next municipal financial year.

The City will be building brand new facilities and upgrading established facilities in order to attain what it says are “world class standards.”

Plans include sports centres and swimming pools, halls, libraries and parks. One of the main buzz phrases to come out of the announcement is ‘spray parks’.  A spray park is a water feature which sprays water so users can play in it. Essentially, it is sprinklers installed intermittently in a grassy area.

Gqada has explained that the spray park concept is being applied worldwide with great success. She has pointed out that as a spray park has no standing water, it “eliminates the need for lifeguards or other supervision as there is practically no risk of drowning”.

Spray parks are intended to service communities where there is no municipal swimming pool, school pools or pools in private houses. The City has mapped every single swimming pool in the metro to ensure that new pools and spray parks are built in the most ‘appropriate’ areas of the city.

Areas in which community upgrades and new developments are planned include Khayelitsha, Gugulethu, Imizamo Yethu, Du Noon, Nyanga and Athlone. The City’s position is that identification of these areas form part of the City’s long term redress plan to eradicate the historical legacy of Apartheid.

Athlone is an example area for Community Service upgrades and development. The City of Cape Town’s Community Service Directorate has added Vygieskraal Stadium, the Manenberg municipal pool and the Athlone municipal pool to their list of facilities to be revamped.  A total of R3.2 million of the project’s funds will be spent in Athlone. The project is set to be complete by June 2013.

Tandeka Gqada said via a press release that two primary methods are used to identify and prioritise under-served communities. “Firstly, community research is used to determine from communities what their needs and preferences relating to community facilities are,” she said.  “Secondly, the Council for Scientific and Industrial Research (CSIR) was commissioned by the City to analyse current community facility provision and distribution, and model future needs spatially, for the whole metropolitan municipal area.”

Kewtown and Heideveld will be receiving a full-size artificial soccer field in the next municipal financial year to the tune of around R5 million each based on the above facility planning methodology.

People’s Post spoke to Kewtown resident and high school teacher, Ian McLean, who believes not upgrading any educational services in Athlone “is an indictment on the City itself”. However, he is thrilled that the Athlone pool will be upgraded. “An upgrade for that pool is long overdue,” says McLean. “We were promised it would be fixed up before the 2010 World Cup but nothing happened. I’m glad that something will finally be done about it now,” he says.

Ian McLean at least has a positive attitude despite concerns about unattended areas of need. One can only hope others do to, especially since these upgrades and developments can only have a positive spin-off for the communities involved. However when communities are in turmoil about basic service delivery spray parks and the like may seem like offering “Qu’ils mangent de la brioche” that is: “let them eat cake.”

Hotels in Rosebank, the latest

Holiday In at the Zone

Less than two years ago saw the opening of the 4 star, 8 floors Holiday Inn joining the Zone in Rosebank. The 5 star Monarch boutique hotel was auctioned off last year. The 5 star Winston hotel was featured on Top Billing and renovations of some of big-name hotels continues.

The five-star Hyatt Regency in Oxford road, adjoin the Firs shopping centre, is to be refurbished to the tune of R100m. The hotel was established in 1995 and has had “soft” refurbishments over the years, but an extensive overhaul is now needed according to Hotel manager Michael McBain talking to MoneyWeb last month.

The hotel has been under pressure from regular local and international guests to update its technology and to bring the establishment more in

The Winston Boutique Hotel

line with global standards. One of the items on the refurbishment agenda will be the rebuilding of the walkway between the hotel and the Gautrain station about 100 metres away. The hotel’s banqueting business has soared since the Gautrain opened in October 2011.

The Hyatt Regency

Other areas for refurbishment include the guest contact areas, basic facilities of the rooms, reception area, kitchens and so on. The overall refurbishment is expected to take 2 to 3 years.  The hotel is owned by Investec and is managed by the Hyatt.

This comes on the back of the opening of the new Tsogo Sun’s, 54 on Bath, a five star boutique hotel located on Bath Avenue which opened on 9 July. Sold by Hyprop Investments Limited, the JSE listed property company that own and is expanding the Rosebank Mall next door.

This building used to house the iconic Grace Hotel and office buildings but is now owned by Tsogo Sun Holdings, one of the largest Johannesburg Stock Exchange listed companies in the hotel and tourism sector.

Tsogo Sun’s 54 on Bath

54 on Bath is Tsogo Sun’s first hotel offering in Rosebank. The company owns 14 casino properties located in Gauteng, Western Cape, Eastern Cape, Free State, Mpumalanga and KwaZulu-Natal, and over 90 hotels in South Africa, Africa and Seychelles.

54 on Bath’s featured Level Four Restaurant offers distinctive dining, classical cuisine with a contemporary twist. “The complete remodelling of the hotel redefines us as a modern yet classic, urban chic, city hotel.” Jacques Moolman, hotel manager was quoted as saying recently. He says they hand-picked significant pieces of art from the old hotel and then commissioned local photographer Ryan Hitchcock for a series of compositions of the surrounding neighbourhoods in Johannesburg.

The property boasts 60 deluxe rooms, 12 executive rooms and three executive suites elegantly styled with views over

The Monarch Boutique Hotel

the garden or the green city skyline. It also has three meeting rooms catering for up to 120 people each and a boardroom that seats 20 people.

Another breath-taking feature of this boutique hotel is the famous roof garden on the fourth level as it creates a bridge from city scape to suburban tranquillity.

The Grace Hotel which was closed down in August 2011 was sold to Tsogo Sun Hotel Group for R85 million. Between R20 million and R25 million was spent on refurbishing the property.

Announcing its six months to June results in August, Hyprop said the downturn in the hospitality industry impacted negatively on the performance of the fund’s hotels, The Grace Hotel in Rosebank and Southern Sun Hyde Park.

Rosebank Hotel Crowne Plaza

It wasn’t that long ago that the independent The Rosebank’s Hotel was the only hotel in town, beside the old Residential Oxford Hotel. The Rosebank was whisked away from the Protea group into chic international sophistication by the Crowne Plaza chain of hotels with a R254m refurbishment. Now it stands proud among Rosebank’s other 5 star hotels.  The Rosebank is the only Crowne Plaza in South Africa.

The City Lodge Courtyard

With The Courtyard and The Don representing one end of the market and The Crowne Plaza Rosebank, The Hyatt and the Holiday Inn representing the international brands, that just leaves the boutique hotel business with Tsogo Sun’s 54 on Bath, The Winston and The Monarch. Eight hotels, five of which are five stars, serving one square kilometre, Rosebank is certainly on the map for international and national visitors.

The Don Apartments

Rosebank – While you were sleeping

Looking at the Rosebank skyline one gets used to seeing cranes. As one comes down so another pops up. Although many observers are sitting up and taking notice of Rosebank as an area under redevelopment, locals will tell you how refurbishments, acquisitions and new buildings have been rumbling on for some time now.

Rosebank Skyline

According to the Broll Office Market Report, Rosebank is being revived with great retail and exciting new office developments supported by the surrounding residential nodes and the Gautrain station. Rosebank is fast becoming the city’s third high-rise business centre after Sandton and the inner city.

Artist Impression of the finished Standard Bank Complex

The cranes are certainly busy in the block bordered by Oxford Road, Baker Street, Cradock Avenue and Bolton Road.  This was the short lived address of the office building 30 Baker Street, the Lindsay Saker dealership and the Sanlam Arena. Some may remember how the Sanlam Arena was built on the site of the old Arena Theatre- hence the name. Prior to that, this was the site of the Rosebank Primary School before it moved to its current location in 1974.

Johannesburg City council relaxed its height restrictions and approved SBREI’s high-density office and retail development on the southern side of the precinct. Phase one is the construction of an 11-storey building. The bank has the rights to go up to 20 storeys but has opted for a lower building with a larger footprint. Standard Bank was one of the first companies to join the Green Building Council in 2008. As a green building, it should be more energy and resource efficient. The Standard Bank development will comprise 125,000sq m mixed-use development. The bank’s new property will cost R1.6 billion and should be finished off this year.

The property will accommodate 5 600 Standard Bank employees and is aimed at alleviating some of the stress placed on the bank’s current infrastructure. Standard Bank has over 60 000 square metres of office development and the iconic Oxford Corner is all but complete offering 9 000 square metres of premium-grade office space.

The news that has slowly unfolded over the last year has been Hyprop’s intentions for the block encompassing the Rosebank Mall, Tsogo Sun (formerly The Grace) and Cradock Heights.

On the corner of Cradock and Tyrwhitt Avenues Hyprop has purchased Cradock Heights, a commercial property with a GLA of 4,745sqm. Hyprop also purchased a 70% undivided share in the office park Nedbank Gardens on Bath Avenue directly opposite the Mall. This landmark building was demolished earlier in April this year.

The demolition of Nedbank Gardens

“Through the two acquisitions Hyprop is consolidating its presence around the Mall to maximise densities and improve connectivity to the office precinct and Gautrain station,” said Financial Director Laurence Cohen.

In short Hyprop intends on almost doubling the Rosebank Mall’s lettable area from 35 000sqm to 62 000sqm, an increase from 101 stores to 161 at a cost of R920 million. The expected yield is 7%. The extensions to the mall will span Bath Avenue and link to the former Nedbank Gardens site. Five new basement parking levels will be constructed here and will be accessible via both Sturdee and Bath Avenues for increased convenience.

The existing centre will remain accessible via Baker Street and the entrance adjacent to the Shell Garage on Bath Avenue. Construction on the 25 month project began in August and is expected to be completed by September 2014.

A number of well-known local and international brands are already secured for the new space. New tenants include retailers with household names like a full line Woolworths Platinum store, a double level Edgar’s department store, Dis-Chem, Mr Price Sports and Jet.

Existing tenants including Stuttafords, Truworths, Mr Price, Queenspark and Foschini, will all be upgraded or expanded to offer the latest new store concepts and merchandise.  Other new boutique offerings include Pringle, Ben Sherman, Kurt Geiger and Earthchild.

Rosebank is one of the few urban areas in Johannesburg with a strong pedestrian culture and a thriving street life. When asked about the new development’s influence on that, Hyprop chief executive officer Pieter Prinsloo told property24 that: “We intend capitalising on these characteristics by creating strong physical linkages with the natural urban corridors that connect the lower Rosebank office blocks to the upper retail parts and the Rosebank Gautrain Station.”

The redevelopment will also connect to the new Tsogo Sun hotel, 54 Bath, as well as create a north-south pedestrian walkway between the Standard Bank development on Baker Street and the taxi rank on Cradock Avenue.

The Tiber

But the Rosebank Mall isn’t the only mall where there is movement. Diagonally opposite the Firs on Biermanann Avenue is the Tiber on Oxford Road which is still taking occupation. After many years of contentious redevelopment applications constrained by the remainder of a half-destroyed historical building, development approval was finally given in mid-2008 for an office building at the well-known corner of Jellicoe Avenue and Oxford Road. The building is intended for offices only and measures 8,416 m² of offices over eight floors.

What’s coming to the other part of the same block housing the Tiber is the big news. Directly opposite the Firs will be “The Bierman”, the name may change, designed by GLH Architects, it will comprise two linked structures made up of glass and green walls. This will bring over 30 000 square metres of office space to let to the Rosebank office market. The Bierman will accommodate three floors of basement parking space, an atrium level, three above-ground parking levels, and 9 floors of office space. That’s 12 floors above ground.

Artist’s model of the Bierman

Although still at the proposal stage, it’s disappointing to note that there is no mixed retail component in the plans given that Rosebank is such a pedestrian friendly community. The Firs is in the heart of pedestrian movement in Rosebank which is strongly emerging as an investment node. The centre was originally built in the 1970s and underwent a multimillion rand redevelopment in September 2009.

A more recent redevelopment included a new restaurant piazza which provides synergies with the rest of Rosebank’s pedestrian and street-level shopping complexes. The restaurant piazza opens onto Cradock Avenue and is intended to create a seamless flow with the rest of the Rosebank shopping node.

The Firs itself has changed hands – Investec Property Fund has acquired the landmark, mixed use retail centre for R272m. The fund purchased the property in a related party acquisition from Investec Property as part of its intention to build its portfolio. Investec Property Fund CEO Sam Leon describes it as “a trophy asset for the fund in that it’s a high profile asset poised for on-going growth.”

Perhaps just a footnote as far as development is concerned but worth mentioning is The Rose, a development going up on the corner of Sturdee and Jellicoe Avenues. This high-end four-storey building, which offers 2,852m² of office space and 100 parking bays, is being built opposite the Rosebank Primary School.

Finally The Zone. Already a formidable presence in Rosebank with some 123 shops and a four star Holiday Inn, The Zone II is still a long way from completion. The Standard Bank building on Cradock Avenue is still to be torn down and further building to take place. The Zone Phase II offers loft offices and two floors of retail. Pedestrians can gain access from Oxford Road and Tyrwhitt Mall, and via a direct entrance to the Rosebank Gautrain station and Bus Rapid Transport system. The Zone Phase II integrates with The Zone Phase I on the south side and The Firs on the north.

The Rosebank Management District and Lower Management District have been working in conjunction with various government and private partners to reduce crime, clean up the area and increase service delivery.

“Rosebank is reviving, with great retail and new office developments which are well-supported by the surrounding residential nodes and the Gautrain station,” said Jane Parker, area specialist and commercial broker at Broll commercial property services group.

Rosebank has so much more to offer than mere office space: A pulsating African Craft Market, a Sunday rooftop market, 8 Hotels, 220 retail outlets (with more to come when The Mall redevelopment is finished and the Zone phase 2 is complete.) nearly 50 restaurants and cafes, 7 night clubs, 10 art galleries, 20 cinemas all linked with a vibrant pedestrian friendly network of concourses and walkways. It’s no wonder that there are cranes on the Rosebank skyline.

Ghana’s Economy, Sending Mixed Signals

Ghana’s economy is sending the world mixed signals. Last year it saw growth skyrocketing, influenced largely by the launch of oil production at its Jubilee oil field in November, sending GDP soaring by nearly 15 per cent. But that growth rate is expected to nearly halve to 8.2 per cent this year as oil production has averaged 80,000 bpd as opposed to the 250 000 bpd that was anticipated for 2013. Either way it’s all growth and the spinoff for the rest of the economy is worth taking notice of.

Ernst & Young defines Rapid Growth Markets (RGMs) as countries with economies and populations of a certain size that display strong growth potential and are, or could be, strategically important for business. Ghana will this year be among the three fastest growing economies from a group of 25 global RGMs, according to a new Ernst & Young report. Ghana’s burgeoning oil industry is credited with the recent rapid economic growth.

Jubilee Oil Fields

The sudden slowdown in growth since the beginning of 2012 is expected to be just a phase. “Our analysis suggests that RGMs are likely to weather the on-going Eurozone crisis and remain engines of global growth, though many will see expansion slow this year,” says Alexis Karklins-Marchay, co-leader of the E&Y Emerging Markets Centre. “Their expansion is expected to accelerate once more in 2013, helping stimulate a wider pick-up.”

The report is dependent on Ghana’s oil output rising, be it gradually. Nevertheless, Ghana’s growth is comparable with other African oil producers. Angola’s economy is expected to grow 9.1 per cent this year, surpassing the rate of stalwart Nigeria, seen growing 7.0 per cent this year. Ghana’s Oil exports should also help to sustain the public finances and the balance of payments, which have been affected by higher government spending.

Ernst & Young forecasts GDP growth of approximately 7% for 2013 and an average of 5% annually over the medium term. “While Ghana will only be a small oil producer, production of the commodity has boosted medium-term growth prospects,” says E&Y.

Growth’s knock-on effect on infrastructure is worth noting. Foreign direct investment into Africa in 2010 fell by 9% but rose significantly in Ghana. The promise of an oil boom has attracted the interest of global construction and infrastructure companies.

An example of this interest has been the signing of a $2 billion letter of intent by Hasan International Holding, a Chinese corporation, to develop an advanced industrial facility near the port of Takoradi, which handles 60% of the country’s crops and mineral exports according to a report by Euromonitor International.

The expected on-going effect should be the creation of jobs in the region, attracting local and foreign workers, which could provide a substantial consumer foundation for retailers looking to expand outside of the capital, Accra.

Another example of infrastructure growth is Helios Towers Africa, a company that leases space on telecom towers to mobile network operators. By owning and managing the towers, Helios allows the network operators to focus on their core business. Helios Towers Africa (HTA) was founded in 2009 and is the leading independent, telecoms tower company in Africa with operations currently in Ghana, Tanzania and the Democratic Republic of Congo (DRC).

Pioneers of the sale-leaseback model in Africa, the Helios model of shared telecoms infrastructure, is helping to deliver improved operating and capital efficiency for mobile network operators, reducing costs, increasing accessibility and improving network quality of service for users. Together with subsidiary HTN they own and manage 3,500 telecom towers, the largest number held by an independent company focused exclusively on Africa.

Due to the infrastructure investment deficit in most sub-Saharan African markets, the timing is perfect. Unless telecoms infrastructure investment in Africa increases, it will be impossible to serve the burgeoning levels of consumer demand for 2G voice, let alone the site densification required for 3G coverage, improved capacity and the rapid growth in data traffic.

More than 60% of Ghana’s population are mobile phone subscribers. Mirroring a trend common throughout Africa, mobiles are increasingly used as a means for cashless payments/transfers, and target the large unbanked population. An example is MTN’s Mobile Money, a service that allows users to send cash and purchase goods from participating retailers.

Retail space has not gone untouched by Ghana’s growth.  Accra, Ghana’s capital is a microcosm. The majority of modern retail space has been developed in Accra, due to better infrastructure and access to a large population. An Euromonitor report notes that Ghana’s retail industry achieved 14% value growth between 2006 and 2011, which reflects the strength of fast-moving consumer goods (FMCG) companies in the country.

An example is Danish-based dairy firm Fan Milk Group. It is reporting 10 times the turnover per capita in Ghana than in Nigeria. In 2010, Ghana was the largest market for the company and, with a turnover of US$67 million, accounted for 48% of the group’s revenue and 64% of its operating profit. Other cases include Unilever and PZ Cussons “The presence of such manufacturers provides a good opportunity for retailers as they can source these manufacturers’ products cheaper locally rather than importing them,” says Euromonitor.

On the retail front, according to Howwemadeitinafrica.com:  RMB Westport, a South African property firm, is also working on two mixed-use developments in Accra. The first is West Ridge Head Office where the ground floor will offer retail space while offices will occupy the rest of the building. The second location is Icon House, close to the airport and Accra Mall, which will also offer retail space.

Artists Impression of Takoradi Port after redevelopment

One place which is a microcosm of the effects of growth in Ghana is the port city of Takoradi. It is expected to see significant growth because of its proximity to the country’s offshore oil fields. Before Ghana began with hard-core commercial oil production in 2011, Takoradi was designated as a backwater town. Nevertheless, it has since risen to prominence due to being the nearest commercial port to Ghana’s offshore oil industry.

In a recent development investment firm Renaissance Group announced a new mixed-use urban development, called King City, to be located 10km from the Takoradi harbour.

King City will be developed on 1,000 ha of land and is designed around a live-work-play concept. It will accommodate residential and commercial growth associated with the region’s mining and energy sector boom. According to Renaissance, the development will feature shopping facilities as well as residential and commercial components. King City will be built in phases over 10 years and is expected to eventually be home to over 90,000 residents.

Other news is that the International Finance Corporation (IFC) has provided a loan of US$5.45 million to Alliance Estates Limited, to build the first Protea Hotel in Takoradi. The 132-room, three-star hotel will help meet demand for business infrastructure as more investors are venturing into the oil producing region of Takoradi. The Protea Hotel will be amongst the first to provide international-standard rooms, rates and conference facilities.

Potential boom towns in Ghana like Takoradi offer attractive opportunities from a property development perspective – especially for hotel and retail developments.

Ghana moved up the World Bank’s Ease of Doing Business rankings from 102nd in 2005 to 60th in 2011. Also internal tariffs are being abolished, allowing for a greater level of intra-regional trade. All good news. Yet analysts remain concerned about a weakening cedi currency due to rising imports for the oil industry.

Inflation has trended upwards, making life difficult for locals, even though economic growth is on the rise from the oil production. A Reuters poll forecasts inflation averaging 9.6 per cent this year and 9.3 for 2013. The inflation rate rose for a fourth straight month in June to 9.4 per cent from 9.3 per cent previously. The cedi has lost over a third of its value since it began producing oil in November 2010, trading now at around 1.95 per dollar.

So it is mixed signals for the investor. Ghana’s growth is coming in ebbs and flows. The development of Ghana’s infrastructure, catalysed in part by the discovery of off-shore oil reserves, and the country’s movement to political stability, has paved the way to sustainable economic growth. With this has come retail potential and prospects that could see Ghana emerge as the next retail hub in the region.

3 Renewable Energy Fallacies

Three Renewable Energy Fallacies

So it’s the 21st century and we can watch TV on our phones and be informed about anything and everything via the internet. Though sometimes what we consider a blessing can also be a curse. An abundance of information means we require discernment to judge between truth and fiction.

This brings us to a world in transition. We currently find ourselves suspended between two eras: a time dependent on fossil fuels such as oil and coal, and a future potentially dominated by renewable energy sources. Not everyone is on board though. Options vary on just how dependable some of these renewable energy sources are, as well as how well they’ll be able to sustain us in a post-fossil fuel era, if there is such a thing.

Such hesitation gives birth to fallacies, misconceptions and even blatant falsehoods. Below we’ll ignore the conspiracy theories and obvious tomfoolery and focus on what seem to be the fallacies that have been given credence of late.

Solar Power is Impotent

Okay so your kids can have sparkly calculators that can get by on solar power and yet the latest formula one racing cars use fossil fuels. This doesn’t help the image of solar power very much.

Even if solar electricity, also known as photovoltaics (PV), was only capable of energizing our low-power gadgets many experts identify the statement “little steps can’t make a difference” as a major myth surrounding the green movement.  While such gadgetry may seem to make little difference to global energy consumption, it’s a small change that forces others to think about the ecological matters at hand and possibly make both small and substantial changes in their sphere of influence.

PV power may not be in a position to solve all our energy problems this year, but its potential for the future is great. Think for a moment, we are referring to acquiring energy from a gigantic star — one that drives our solar system, our atmosphere and pretty much all life as we know it. The United States Department of Energy (DOE) estimates that the solar energy resource in a 100-square-mile (259-square-kilometer) area of Nevada could supply the United States with all its electricity.

South Africa is one of the best located regions for Concentrated Solar Power (CSP) with some of the highest levels of Direct Normal Irradiance (DNI) in the world. The Northern Cape region of the country experiences levels of more than 2 900 kWh/m2, significantly more than some of the other CSP hot spots such as Spain and Southern California in the USA and the Department of Energy’s (DoE) Integrated Resource Plan allows for 1 GW of CSP of a total of 18 GW to be delivered from renewables by 2030.

Initial research by the University of Stellenbosch’s Centre for Renewable and Sustainable Energy Studies (CRSES) indicates that there is a short term potential of 262 GW for viable CSP taking factors such as DNI, land slope, dispatchability, land use and water availability into account, and 311  GW in the medium term with further transmission infrastructure upgrades.

Now that could blow the numbers out of your calculator.

Cleaner Coal Will Make Solve Everything.

Clean Coal is an oxymoron. In short coal is filthy stuff. Scientists argue that the coal mining process alone prevents it from ever being “clean,” without even considering the other pollutants.

South Africa’s energy resource is almost solely dependent on coal. For every unit of electricity produced and consumed, nearly 1 kg of carbon dioxide and pollutant by-products are released into the atmosphere.

Coal-fired power plants spew out sulphur dioxide, carbon particles as well as carbon dioxide (CO2). But coal continues to play a vital role in global energy production, and it would be unreasonable to expect people to return to pre-Industrial Revolution days either. Clean coal technology theoretically mitigates the impact of coal pollution until a better option is found.

However there are a great deal of clean coal technology centres around capturing and storing pollutants that would otherwise be released in the burning process. This involves either pumping the gas down wells or into deep-ocean depths.  Not only can the latter option potentially endanger marine ecosystems, but also they both require care and monitoring to prevent polluting the environment anyway. Some scientists insist that these measures amount to a redirecting of pollution, not a true reduction of it.

The fallacy of clean coal solving everything is easy to unveil. We may have to put up with it for a while but we should never be fooled into believing that it is either green or renewable. It certainly isn’t inexhaustible.

Wind Power Kills Birds and Deafens Humans

Wind farms are accused of being bird deboning and feather-plucking plants. Alas this is not entirely untrue, wind turbines do kill birds. One may argue that so do many other things do too: vehicles, buildings, pollution, poison, transmission lines, communication towers and the introduction of invasive species into their habitats. Despite the daunting sight of a field of wind turbines the statistic for bird deaths is low, that’s 1 in 30 000 according to the U.S. Department of Energy.

As for noise, modern turbine technology keeps turbines relatively quiet- essentially no more than the soft, steady call of wind through the blades. In Canada the Ontario Ministry of Environment breaks it down like this: If 0 decibels is the threshold of hearing and 140 is the threshold of pain, then a typical wind farm scores between 35 and 45, sandwiched between a quiet bedroom (35) and a 40-mile-per-hour (64-kilometer-per-hour) car (55).

Regarding the cost: research indicates that the average wind farm pays back the energy used in its manufacture within three to five months of operation (source:BWEA). Since wind farms depend on variable weather patterns, day-to-day operating costs tend to run higher. Simply put, the wind isn’t going to blow at top speed year-round. If it did, a wind turbine would produce its maximum theoretical power. In reality, a turbine only produces 30 per cent of this amount, though it produces different levels of electricity 70 to 85 per cent of the time. (source:BWEA)

This means that wind power requires back-up power from an alternative source, but this is common in energy production.

Wind power has huge potential as a renewable energy resource.

Something worth noting when examining such fallacies is that while renewable energy certainly offers the prospect to reduce carbon dioxide emissions, regrettably, solar and wind power requires substantial parcels of land to deliver relatively low volumes of energy relative to fossil fuels. By way of an example, a natural gas well producing 60 000 cf per day generates more than 20 times the energy per square meter of a wind turbine. Transferring to renewable energy will result in a substantial “energy sprawl” that will pose challenges for the conservation of bio diversity.

Sources: Rainharvest; Energy Find; How Stuff Works; CIA Factbook; New York Times; The Sustainable Energy Society of Southern Africa)

Orange Farm Steadily Moves out of the Darkness

Orange Farm, 380 000 families strong, South Africa’s largest ‘informal settlement’, a fading label, has steadily been empowered over the last few years and is now on the brink of getting its own shopping centre.

Typical Orange Farm Dwelling

Orange Farm is described by some observers as unique among South African community settlements. Its people are particularly vibrant, resilient and unusually resourceful, with a high level of political mobilisation.

Located 42 kilometres south of the Johannesburg CBD, Orange Farm has flourished to become the biggest and most populous informal settlement in the country. It is also one of Johannesburg’s most geographically isolated communities.

Well known for its high levels of poverty and unemployment challenged by the multiple needs of housing, infrastructure and economic stimulation the region has huge economic potential which has, up until recently, been largely unexplored.

Taking a step back in the story, signs of intent by the City and business became clear a few years back when Internet Solutions decided to use the Orange Farm ICT Hub as a test bed for its wireless voice over technology. The intent was to take Orange Farm from a low-tech informal settlement to a high-tech centre of modern technologies.

ICT Hub

The Orange Farm Hub – for information and communications technology (ICT) – is housed in the settlement’s library. Through the centre numerous community members have already been trained to use computers for office and administrative purposes. Students are taught various skills, from a basic introduction to computers and using Microsoft Office, to using the Internet and learning about desktop publishing. Internet Solutions erected a base station at the hub that provides connectivity to centres located within a 15km radius.

Another project that was demonstrative of the changing infrastructure was the new Ridge Walkway. Getting from one side of Orange Farm to the other became a whole lot easier. Twenty years ago when people first settled in the area – originally an orange farm, from where it gets its name – was an informal settlement, marked by a cluster of corrugated iron shacks, with a lack of sanitation or satisfactory infrastructure. The area was difficult and dangerous to navigate from one side to the other.

Using funds from the National Treasury, the Johannesburg Development Agency (JDA) spearheaded the construction of a walkway in Ward 3 of Orange Farm. The 6 meter wide walkway enables easy access for residents to social amenities, including economic and transport nodes. This has helped to curb the number of murders and rapes that were associated with the old footpath.

A sculpture of an orange picker beside the walkway.

Alongside the Walkway are a range of mosaic murals of children’s hands and a paved area that leads from a local school to a playground at the edge of the ridge, which has swings and play equipment; it is a favourite for local youngsters. Construction of the walkway took six months, and cost R7, 4-million.

The JDA’s intention was based on the belief that the walkway would improve access to socio-economic amenities, improve communal living, boost the aesthetics of the area and enhance civic pride.

The Bridge to Freedom

This lead, to the Orange Farm Pedestrian Bridge. With over a thousand pedestrians from Orange Farm crossing the N1-19 daily, the South African National Roads Agency Limited (Sanral) decided to put up a pedestrian bridge across the busy highway. During construction of the Orange Farm Bridge, job opportunities were created for local residents. Provisions were also made for cyclists and disabled people, whose crossing is also facilitated over the bridge.

With help from its partners in the NGO and private sector, the City is working towards a vision of Orange Farm as a sustainable, economically viable town and a desirable place to live. Projects include: road construction and widening, the Pikitup Garden Refuse Project, attenuation pond and storm water drainage and various school initiatives.

Orange Farm has six extensions. All have the necessary services, such as electricity, metered water, sanitation and a sewage system. Geographically displaced from the business districts of greater Johannesburg, Orange Farm is largely a marginalised dormitory, with no economic base of its own, up until now it has been dependent on Johannesburg.

From an estimated 3 000 residents in shacks in the late 1980s serviced by mostly gravel paths, today there is a modern library, many tarred roads, permanent houses in the proclaimed area, low cost housing, four clinics, an information and skills development centre with internet access, a multi-purpose community centre and some on-site government offices such as the Department of Health, Social Development, Home Affairs, Housing and Transport, and a police station.

Johannesburg’s Regional director, Mlamleli Belot was reported as saying: “We want to develop Orange Farm to become socially cohesive enough to attract middle and high income residents.”

Veggie and Flower Gardens

Reconstruction and Development Programme (RDP) houses have been renovated and many residents are extending their houses. Flower gardens and lawns are also sprouting, homes have barrier walls, streets are kept clean and have street lights, shopping nodes are more accessible and are supplemented by local spaza shops.

Infrastructural upgrades meant to boost the aesthetics of the area, improved roads and sewage and ultimately instil civic pride are on-going. A few illegal dumping sites remain.

On the commercial property front there are signs of retail moving into the area. Once Town Square Mall is open, more money will be retained in Orange Farm as people will no longer need to shop in neighbouring regions.

The National Empowerment Fund (NEF) approved R50 million to support 19% upfront community ownership of a regional shopping centre measuring 39 000m2.

The mall will be anchored by major brands such as Pick’ n Pay, Shoprite, JD Group, Edcon and Metro Cash and Carry; there will also be health, beauty and fashion stores; fast food outlets and entertainment as well as home ware stores. Thusong Services housing will be present as well as various government departments like Home Affairs, SARS and the Department of Labour. 46% of the shops will be let to black tenants in a mall whose commercial viability is based on 80% confirmed leases.

Artist Impression of the Centre

The investment is creating 750 permanent jobs and around 2000 jobs during construction. Between 20 and 30% of project value will be spent in the Orange Farm area, and retail store opportunities will be made available to hawkers and taxi owners.

The positioning of the mall, named for its central location in Stretford, takes into consideration the many pedestrian routes, such as the Ridge Walk, that lead to the site from the surrounding residential areas of Orange Farm to the station and the taxi rank.

It is also near the local clinic, conservation area, schools, residential areas, the police station, fire station, skills centre, post office, and small scale non-residential buildings.

The mall is really just another step forward in the upliftment of the area from informal settlement to a healthy functioning residential area with ever-improving infrastructure and facilities. With some assistance form private enterprise, local government and NGOs, Orange Farm residents, as they take ownership, are building a community that has a financial future improving the lives of its people and the value of its property.

Investing in Africa, Good News, Bad News and Faux Pars

Accra Mall Ghana

As people around the globe eye Africa for potential investment and South Africans head north there is some encouraging news to feed those ambitions, worrying reports to temper our enthusiasm and some mistakes to learn from.

Ghana’s capital Accra is awash with educated, well-dressed young up-and-coming people, driving top-of-the-range cars living in stylish houses. It’s indicative of Ghana’s economic growth, 14.4% last year. According to the World Bank many African economies are forecast to be among the world’s fastest growing in 2012. Top of that list are the DRC, Nigeria, Ghana, Liberia and Ethiopia.

US-based business consulting company Ernst & Young reports: “There is a new story emerging out of Africa: a story of growth, progress, potential and profitability.”  US secretary of state for African affairs, Johnnie Carson is quoted as saying that Africa represents the next global economic frontier. China’s trade with Africa reached $160 billion in 2011, making the continent one of its largest trading partners.

London based magazine The Economist reported last month: “Since The Economist regrettably labelled Africa ‘the hopeless continent’ a decade ago, a profound change has taken hold.” Today “the sun shines bright … the continent’s impressive growth looks likely to continue.”

Africa’s trade with the rest of the globe has skyrocketed by more than 200% and annual inflation has averaged only 8%. Foreign debt has dropped by 25% and foreign direct investment (FDI) grew by 27% in 2011 alone.

Despite projections for growth in 2012 being revised downward due to the so called Arab Spring , Africa’s economy is expected  to expand by 4.2%, according to a UN report earlier in the year. The International Monetary Fund (IMF) is expecting Sub-Saharan African economies to increase at above 5%. Added to that, there are currently more than half a billion mobile phone users in Africa, while improving skills and increasing literacy are attributed to a 3% growth in productivity.

According to a UN report the think tank,  McKinsey Global Institute writes, “The rate of return on foreign investment is higher in Africa than in any other developing region.”

An end to numerous military conflicts, the availability of abundant natural resources and economic reforms have promoted a better business climate and helped propel  Africa’s economic growth.  Greater political stability is greasing the continent’s economic engine. The UN Economic Commission for Africa (ECA) in 2005 linked democracy to economic growth.

All this growth and urbanisation is putting a strain on social services in the cities, it has also led to an increase in urban consumers. More than 40% of Africa’s population now lives in cities, and by 2030 Africa’s top 18 cities will have a combined spending power of $1.3 trillion. The Wall Street Journal reports that Africa’s middle class, currently estimated at 60 million, will reach 100 million by 2015.

Then there’s the more sobering news.  “A sustained slowdown in advanced countries will dampen demand for Africa’s exports,” writes Christine Lagarde, managing director of the IMF. Europe accounts for more than half of Africa’s external trade. Tourism could also suffer as fewer Europeans come to Africa, effecting tourist dependent economies like Kenya, Tanzania and Egypt.

The South African Reserve bank warned in May that the financial crisis in Europe, which consumes 25% of South Africa’s exports, poses large risks. Adverse effects on South Africa could have severe consequences for neighbouring economies.

Another worry is the resurgence of political crises. Due to the so called Arab Spring, economic growth in North Africa plummeted to just 0.5% in 2011. Recent coups in Mali and Guinea-Bissau could have wider economic repercussions. “Mali was scoring very well, now we are back to square one,” says Mthuli Ncube, the AfDB’s chief economist. Ethiopia, Kenya, Uganda and other countries have militarily engaged in Somalia, which may slow their economies. And Nigeria is grappling with Boko Haram, a terrorist sect in the north of that country.

A cause for concern what many are referring to as Africa’s “jobless recovery.” Investors are concentrating on the extractive sector, specifically gold and diamonds, as well as oil, which generates fewer employment opportunities. 60% of Africa’s unemployed are aged 15 to 24 and about half are women. In May, UNDP raised an alarm over food insecurity in sub-Saharan Africa, a quarter of whose 860 million people are undernourished.

But none of this is deterring South African business interest north of the border. One may ask why? South Africa’s domestic market is not providing local companies with enough growth opportunities, prompting many of them to look at the rest of the continent. This according to Ernst & Young’s Africa Business Centre’s leader, Michael Lalor in an online press conference recently: “While South Africa is still growing well compared to the advanced economies, it’s certainly not keeping up with some of the other rapid-growth markets.” Says Lalor.

Analysts are pointing out that many of the other emerging markets, such as China and South America, are difficult to enter, making the rest of Africa the obvious choice. Asia is seen as almost excessively competitive. Latin America ventures mean dealing with a very strong and ever present Brazil. Therefore Africa, given its sustainable growth story and its potential, is an obvious region for South African companies to grow into.

Quoted by howemadeitinafica.com Lalor says that most Johannesburg Stock Exchange-listed companies are currently developing strategies for the rest of the continent.   Ernst & Young is experiencing strong interest from foreign companies to invest in the continent. “The response from our clients and from potential investors is overwhelmingly positive, to the extent that we simply cannot keep up. So there’s no doubt that we are seeing significant interest, both spoken, interest in spirit, but also people putting their money where their mouths are,” he said.

These sentiments are confirmed by a survey done last year by Price Waterhouse Coopers. A CEO survey published by PwC found that 94% of South African company heads expect their business in Africa to grow in the next 12 months. PwC interviewed 32 South African CEOs in the ICT, financial services, and consumer and industrial products and services industries.

With this in mind it’s worth turning to Raymond Booyse, founder of consultancy firm Expand into Africa, who identified four mistakes often made by South African companies venturing into the rest of the continent.

The first was: Not doing your homework. South African firms are frequently not prepared to spend money on market research. “Go and look if there is a market for your products or services. After you’ve established that there is indeed a market, find out who your competitors will be,” says Booyse.

Booyse points out that South African companies underestimate transport costs and ignore how local laws and regulations influence doing business.

Secondly: Ignorance. Many South African business people are ignorant of local cultures and attitudes according to Booyse. By way of example, ignorance doesn’t realise that just because they’re both former Portuguese colonies, what works in Angola’s capital Luanda, doesn’t necessarily mean it will work in the northern Mozambique. In a recent report, research firm Nielsen noted that African consumers’ attitudes towards technology, fashion and how to spend leisure time vary greatly. No prizes for that one.

Thirdly: Arrogance. Booyse says that South Africans sometimes think they know what people in the rest of the continent need. “In the rest of Africa, South Africans are often regarded as arrogant.”

Finally: Not being prepared for the high costs of doing business in Africa. Many South African companies are not aware of the high costs involved in doing business in the rest of the continent. “If you want to spend two weeks in Angola it will cost you R40,000 (US$4,700),” notes Booyse. “It is not cheap and easy.” Flights for example, from South Africa to either Kinshasa or Lubumbashi can be costly, and hotel rates are also very high.

It’s clear that Africa is a fertile place to plant seed. But Africa is not for the faint-hearted as business is done in a very different way to elsewhere in the world, with all manner of social and political hoops to jump through. South African companies have a potentially bright future and definite advantages if they are prepared to take risks, stay humble and do their homework.

Auctioneering in South Africa, still has one foot in the mud.

Auctioneering in South Africa is bobbing like a cork in a sea of suspicion. Let’s take  a quick look at Rael Levitt’s confession, a raid by the Hawks, a subsequent application with the Western Cape High Court; South African Institute of Auctioneers (SAIA) submits a code of conduct and is there a conflict of interest with qualifications and Tirhani Mabunda?

Rael Levitt – the confession

Rael Levitt, courtesy IOL

Rael Levitt resigned his position as CEO of Auction Alliance in February upon being accused of paying dummy bidders to hike up prices during auctions. He has confessed to using Auction Alliance employee Deon Leygonie to hike up the bidding price at the Quoin Rock estate auction in Stellenbosch in December last year.

Astonishingly Levitt says he was unaware that what he was doing was against the rules.  He clarified that it was only when bidder Wendy Appelbaum became suspicious as to whether Leygonie was a genuine bidder, questioning how above-board the process was, that Levitt chose to read the rules and discovered that it was a forbidden practice. Leygonie never actually made any real bids, he was used to push up the bid from Appelbaum’s R35 million to R55 million.

In his confession Levitt divulges that after the Auction he met with friend, Israeli businessman Ariel Gerbi who then agreed to be registered as a bidder, making it appear as if the Auction Alliance employee had been bidding on his behalf.

{Source: Eyewitness News}

The Hawks, a Raid and Court Order

The Hawks are investigating: Fraud, money laundering, and a failure to keep accurate records of business, or wilfully destroying them in their swoop on Auction Alliance House. The Hawks are also tabling the movements, travel arrangements and appointments of Rael Levitt as far back as 1993.

The Raids were conducted in early August at Auction Alliance offices in the Cape Town CBD, Levitt’s residence, the offices of accounting firm Accountants@Law, and at auditing firm KPMG. Documents included Levitt’s diaries, Credit Card receipts and other documents. Other items included any financial records “of whatsoever nature”, including records of foreign bank accounts and tax returns with a bearing on the investigation.

Auction Alliance has however launched an application with the Western Cape High Court against the Minister of Police and a Cape Town magistrate to challenge the constitutionality of search warrants authorising recent police raids. In an affidavit before court, Levitt argued most of the offences listed in the annexures did not clearly specify who was suspected.

In a two pronged approach the application firstly brought an interdict to prevent the police from viewing material seized, and a second to challenge the constitutionality of the search warrants issued. This brought pressure to bear as parties reached a settlement.

In terms of the settlement, made an order of court by Acting Judge Rob Stelzner, the police undertook to return the seized items.

The lawyers must retain the items in sealed exhibit bags until September 7, or until determination of any application for a subpoena or search warrant brought before that date. The minister has undertaken to write a “without prejudice” proposal to Auction Alliance and Levitt on how police propose to be given access to the material seized.

 Code of Conduct

In the wake of the Auction Alliance scandal, the South African Institute of Auctioneers (SAIA) has proposed a code of conduct for the auction industry. This is reported as having been widely welcomed by practising auctioneers saying new entry requirements will help regulate and stabilise the industry. The draft will first be submitted to the public consultation process to be accredited by the Department of Trade and Industry.

Moneyweb spoke to Mark Kleynhans, director of Aucor Property who has also welcomed the SAIA proposal: “Aucor Property is in support of processes and procedures that bring credibility and transparency to the auction industry and we believe that a fair and consultative course of action in order to draft an all-encompassing code of conduct is required.”

However realtor Lew Geffen believes the proposal is only an attempt at damage control due to the lack of faith the public has in the auction process. Geffen believes a statutory code is what’s really needed to deal with ghost bidding or any other dodgy practices exposed of late.

Another sentiment that has emerged is a sympathy with the what is believed to be the majority of auctioneers who are credited by many in the property business as ethical and who put clients’ interests first.

Conflict of Interest

Tirhani Mabunda, courtesy IOL

Just when you thought it was safe. Tirhani Mabunda, the chair of SAIA who is also owner of the African Training Academy and School of Auctioneering (ATASA) is accused of having a conflict of interest.

SAIA’s draft code of conduct for the industry involves entry-level qualifications for all new recruits into the sector. Those currently practising as auctioneers will need to be evaluated and if they are considered unqualified, they will have to enrol for the NQF4 and NQF5 courses as well. 60% of practicing auctioneers are considered to be in such a position according to SAIA.

The year long course for candidates to get up to speed is accredited by the South African Qualifications Authority (Saqa). Who has the accreditation: none other than, Tirhani Mabunda, and his African Training Academy and School of Auctioneering (ATASA).

When asked the obvious question by Moneyweb about a conflict of interest Mabunda said he started ATASA in May 2008 but it was only registered as a company in 2009. He became chair of SAIA in 2010. At that stage the academy mainly offered courses for estate agents. Mabunda said he started compiling the curriculum for the auctioneering course in 2009 and it was subsequently accredited by Saqa and the SETA in 2010.

With the Auction Alliance scandal came new and panicked calls for the industry to be regulated. Mabunda described to Moneyweb, allegations that his school stood to gain from the proposed code of conduct and the entry level exam as “disingenuous”.

Of course one point is that ATASA may be the only institution providing the required training currently but this does not preclude any other industry players offering the same accredited courses.

In the end the matter is perhaps more one of perception than anything else but some say that perception is everything.

It seems the auction industry is far from being out of the woods with regards to any ambitions it may have, to appear above-board and worthy of trust.

Namibian Property Market – Open for Business

Namibia is the 15th largest country in Africa with a population of just over two million people; this makes it the second least densely populated country in the world after Mongolia. With a per capita GDP of $7363.00 (7th in Africa) one would think the population isn’t doing too badly, however, given that approximately half the population live below the international poverty line of U.S.$1.25 a day, that picture alters.

The country’s Gini coefficient (list of countries by income equality) is 70.7 the highest in the world followed by South Africa. That means with the disparity of wealth in Namibia comes property markets poles apart from one another. Median house prices vary from N$ 317 000 for a small property in the south, N$ 510 000 for a medium sized property in the north to N$ 1 100 000 for a large property at the coast. (N$ pegged to ZAR)

Paul Kruger of Pam Golding Namibia, says that currently the residential market segment with the most activity is represented in the price range of N$ 450 000 to N$ 1.6 million. As prices increase, activity dissipates and the market segment with the least activity is in the price range above N$3.5 million, although activity in this segment remains vibrant. Sectional title units is a popular local investment with an average price between N$ 750 000 and N$ 1 800 000 for two to three bedroom units which generally offers a rental return between N$ 7 500 and N$ 13 000 per month.

Windhoek CBD

However there is a trend in the development of lifestyle estates in the residential market and turnkey products for clients in the retail and commercial sectors. Further evidence of this is the development of two new mixed use facilities (residential, commercial and industrial), one in Windhoek and another in Swakopmund, with the first two regional shopping centres as the core focus of these projects.”

Many South Africa’s may have out-dated perceptions of Namibia, perhaps going back to the South West Africa days. Things have changed somewhat in the major centres, for example there are sophisticated shopping malls in most of Namibia retail centres.

The Maerua Mall

The Maerua Mall is a shopping complex in Windhoek. Expanded to more than double its original size in 2006, Maerua Mall is now the largest shopping mall in Namibia and contains a number of retail outlets, including Ackermans, @home, FNB, and Total Sports. It is the only mall in Namibia which contains a cinema and a Virgin Active gym. Maerua has the usual fast-food/convenience restaurants including Spur, Wimpy, Mugg & Bean and Dulce Cafe.

Wernhil Park with a facelift -artist’s impression

The Wernhil Park Mall is also in Windhoek. It is named after the first names of Werner and Hildegard List, the senior stockholders of the Ohlthaver and List Group of Companies who owns the facility. It is the second largest mall in Namibia. Along with Maerua Park Mall, the two malls are the largest formal shopping venues in Namibia.

From an infrastructure point of view, things are on the move with the upgrading of airports for example.

The Namibia Airports Company (NAC) is investing R1, 2-billion on airport upgrades over the next five years, which will allow any-sized aircraft, including super jumbo jets, to land at the country’s two main airports. The State-owned enterprise said that the envisaged improvements would also enable it to offer around-the-clock service at the Hosea Kutako International Airport (HKIA) and the Walvis Bay airport.

Windhoek International Airport

NAC is spending R120-million on runway rehabilitation at HKIA, which is located 45 km outside Windhoek. This is its biggest undertaking since its inception, and is financed partly by the Namibian Ministry of Works and Transport. NAC also plans to build a new passenger arrivals terminal, an office block and a head office at HKIA.

At the Walvis Bay airport, NAC is expanding the terminal and refurbishing the old taxiway and apron at a cost of about R37-million. The increased terminal capacity would boost passenger movement from 50 passengers an hour to 250 passengers an hour, paired with increased retail offerings.

Walvisbay

“The Walvis Bay fishing export industry will also benefit greatly from this expansion as traffic will return to the area, resulting in lower transport costs of particularly fish exports to international markets,” the company has reported.

Plans to increase safety and security have also been undertaken at Windhoek’s smaller Eros airport and the Lüderitz airport.

Improved infrastructure is showing the political will to improve the investment prospects of Namibia commercial centres. Clearly the intention is of attracting investors, among other reasons. Looking more specifically at property: despite the property market showing an annual growth of 20-25 per cent over the last few years, the banks have increased their lending criteria.

Mother bonds are available to property developers after securing 80 per cent pre-sales on developments.  Other financial institutions like Old Mutual invest in and fund commercial and residential property developments in Namibia, while alternative funding is available through various institutions like the Government Institutions Pension Fund (GIPF) to finance targeted property development projects.

In the words of Pam Golding’s Paul Kruger: “The potential for growth in the real estate sector in Namibia seems endless. One area with exceptional growth potential is property developed for the low to medium income bracket in Namibia.  At the current rate at which Namibia is addressing structural supply shortages, it will take at least another 720 years for the country to exhaust all available municipal land.”

Since August 2011, municipal areas across the country were found to hold a capacity of 3.6 million houses, 1.6 million of which would fit into Windhoek and its recently extended boundaries. Currently, Windhoek accommodates over eighty thousand houses, whilst the present population growth requires the mortgaging of approximately 300 stands per month. On average only five stands are mortgaged monthly.

Paul Kruger says while these figures accentuate the demand for low to medium cost housing they also indicate the need for housing as well as infrastructure across all sectors. Further demand and growth is expected with the anticipated growth in the mining and resources sectors as the mining of uranium and oil reserves occurs.

Swakopmund Schuller Strasse

Namibia’s three major centres being Windhoek, Swakopmund and Walvis Bay are the hot spots in the residential market according to Kruger. There is also a recovery in development in some smaller towns like Tsumeb, Otjiwarongo and Omaruru

Agricultural land is also in high demand, in particular game farms, as well as farms suitable for livestock and irrigation. On the commercial front Windhoek, Swakopmund, and Walvis Bay are the focus of developments. There is also much investment in Oshakati and Ondangwa.

New retail developments in Keetmanshoop in the south and Otjiwarongo in the north funded by GIPF (Government Institutions Pension Fund) will undoubtedly contribute to growth in these areas.   Industrially, both Windhoek as a growing capital city and Walvis Bay as the main port with planned upgrade and expansion to its container terminal offer various industrial investment and development opportunities.

The Grove

An arresting development on the retail front is the new Grove shopping centre in Windhoek. Upon completion it will be Namibia’s largest. The mall is situated within the Hilltop mixed use estate next to Tradecentre in Kleine Kuppe, Windhoek. Kleine Kuppe and surrounds is currently the fastest growing node in Windhoek and the area enjoys the most convenient access from almost all suburbs. The Grove with a total development cost of N$1.1 billion is the largest commercial property investment ever within the borders of Namibia.

“From a commercial perspective Windhoek is experiencing a boom in the commercial (office) sector, with various investment and development opportunities. With a growing economy, stable and sound political environment, well developed and maintained infrastructure, sound fiscal and legal framework there are good reasons to invest in property in Namibia,” says Paul Kruger.

Doing business in Namibia, according to the World Bank’s International Finance Corp, is at rank 74 (SA is 35) down 4 spots since 2011. Getting credit is ranked 24, (SA has a number 1 rank) registering property is 145 while South Africa is at 76. So although not at the same level as South Africa, the rankings are fair as far as Africa goes.

Price Waterhouse Coopers official line on Namibia is encouraging: “This African jewel is a growing hub of business opportunity, with a wealth of land-based resources shows considerable growth prospects in the Tourism, Mining and Agricultural sectors. With the Namibian business environment firmly supported by the Ministry of Trade and Industry, investors can look out for: An open government attitude towards foreign direct investment. Government policy that supports free enterprise. A sophisticated banking system and a multitude of business opportunities.”

And who can argue with that.

 

 

 

Africa is the Next Big thing

Investment into Africa as the next big thing seems to be all but established. But investment into property developments has been stop start, with some notable exceptions. Experts on the ground are expecting investment to pick up as Africa’s hunger for shopping malls and commercial office space continues to grow.

Many retailers that have set up operations in Africa have expressed that their expansion on the continent is being held back by the lack of suitable shopping malls. This begs the question that if there is such a strong demand for modern retail locations, why aren’t we seeing new malls being developed at a more rapid pace?

There are some worthy exceptions: South Africa’s Manto Investment Group is to construct a US$30 million shopping centre in Ndola, Zambia. Construction work is expected to commence after feasibility studies have been completed.

West property, Augur Investments and McCormick Property Development, are planning the building of a 68, 000sqm shopping mall in Zimbabwe located in Harare’s up market Borrowdale suburb. According to The Zimbabwean online (UK), this represents the biggest shopping mall in Africa, outside South Africa.

The Financial Mail reports that Resilient Property Income Fund Ltd plans to spend more than 1 billion rand building 10 shopping malls in Nigeria.  The malls, 10,000 square meters and 15,000 square meters in size, will be built over the next three years in the capital, Abuja, and the city of Lagos respectively, the main commercial hubs. Shoprite, Africa’s largest food retailer, will be the major tenant. Bloomberg reports that Standard Bank Group Ltd, Africa’s biggest lender, and construction company Group Five Ltd. (GRF) are also partners in the deal.

Recently, emerging markets private equity firm Actis has been at the forefront of a number of Africa’s more high-profile property developments. The company is behind Nigeria’s arguably first modern shopping malls and has recently announced that it will invest in East Africa’s largest retail mall to be situated in Nairobi.

How we made it in Africa asked Kevin Teeroovengadum, a director for real estate at Actis why we aren’t seeing new malls being developed at a more rapid pace. Teeroovengadum believes there hasn’t been significant enough interest from international property developers to invest in sub-Saharan Africa. South African developers were focused on the local market due to the football World Cup, while European firms were concentrating on Europe and the Middle East. However, the recession in Europe has prompted some European real estate companies to look at Africa for growth opportunities. Post-2010 many South African property players have also turned their attention to the rest of the continent.

Something that players in the industry point out is that the development of shopping malls is time consuming. This referring to the red tape involved with dealing with multiple countries, different regulations and laws and political interference.

Teeroovengadum said. “But if I look at today, and compare it with five years ago, there are far more players involved in the real estate sector. We can really see that happening on the ground. I think if we fast-forward two or three years from now, you are going to see more shopping centres being built in places like Ghana, Nigeria and Kenya – the big economies. You are going to see a fast-tracking of property development happening in Africa.”

Africa south of the Sahara, not including South Africa, has a little in the way of  the modern shopping mall experience. Most shoppers still have to frequent a variety of places for their shopping requirements.

However, there appears to be an inclination towards convenience where a variety of products can be found in one location. “Clearly we are seeing in all the markets where we have invested a type of evolution of people moving from informal to formal shopping centres.” Says Teeroovengadum.

One of the challenges continues to be access to funds for property developments in much of sub-Saharan Africa. With the exception of many of South African developments that are funded with up to 100% debt, the rest of the continent developers often need to put down around 50% in cash.  Currently there are few banks that are willing to lend for 10 to 15 years. However it is reported that this is improving, as markets become stronger, local banks become stronger, and changes are occurring in markets like Ghana, Zambia and Nigeria in this regard.

Although Africa is drawing the attention of increasingly greater numbers of international investors, interest in the property sector remains relatively passive.  On a macro level, more investors are looking to invest in Africa.  Barely a week goes by that one doesn’t see an article about Africa, and its growth opportunities and increased foreign direct investment.

However when it comes to property it is a different situation says Teeroovengadum. He refers to the number of investors who made poor returns over the last decade due to the asset bubbles in the US, Europe and Middle East. They are very hesitant about investing more into property. Those who are willing are typically development finance institutions, those institutions that have long-term money for Africa. There are a couple of international pension funds who are looking at investing in Africa, but there are very few these days.

When the question was posed to Actis directors about how they decide which African countries to invest, in they replied that at a basic level they look for a ‘strong economy’ like Nigeria, Ghana Kenya, Uganda and Zambia. This indicates that these countries have good fundamentals, a large population, GDP growth and increasing GDP per capita etc. A Strong legal system was also referred to.

Africa wants shopping malls and companies like Resilient and Actis are gearing up to deliver.

Africa is not an island and is subject to the ebbs and flows of the world economy and its whims and fancies. Nevertheless for whatever reasons Africa is emerging as the next big thing in world investment and economic growth. But is the time right while the world is reeling from financial crisis upon financial crisis. Time will tell if those who were brave enough were foolish or wise.

Unorthodox Renewable Energy Ideas

In every sphere of life there are eccentrics. Why should renewable energy be any different. Rather than wait for the oil wells to run dry and coastal cities to disappear beneath rising sea levels, many people are looking ahead to cleaner alternative sources of energy. Some of the unorthodox examples that follow have been tried and are already catching on whilst others are very much in the minds’ of some very lateral thinkers. Here are some Unorthodox Renewable Energy Ideas.

Mudstones

Ancient Mudstones

300 million-year-old mudstones could one day reduce our dependence on conventionally-obtained fossil fuels, according to researchers at the University of Leicester. Shale gas can be found in the stones, much as it’s been found in sandstone for many years. But mudstone yields up to four times as much gas as sandstone. However, extracting the gas from the stones could be challenging since the stones aren’t consistent in their gas retention.

Balloons in space

Balloons in Space

Orbiting Mirrors to Transmit Solar Energy, does that sound like a Bond movie? A fleet of balloon like satellites, which would inflate once in orbit. That’s the brainchild of Massachusetts Institute of Technology engineering professor William F. Schreiber. Once inflated and orbiting, and as the Earth’s position changes with respect to the sun, the spherical mirrors would be adjusted continuously to catch and focus solar energy and transmit it in concentrated beams to receiving stations on Earth. At those receiving stations, that solar energy would be used to heat water into steam and drive turbines to generate electricity.

While Schreiber’s idea for using giant shiny balloons may sound a little eccentric, scientists increasingly have been looking at the possibility of using satellites to harvest solar power and transmit it to Earth. At the International Academy of Astronautics in Paris a statement was released to this effect: “It is clear that solar power delivered from space could play a tremendously important role in meeting the global need for energy during the 21st Century.” Similarly U.S. Air Force Col. Michael Smith, the director of the Pentagon’s Centre for Strategy and Technology, was quoted as saying that the concept has the potential to supply safe, clean energy to earth if it can be made to work.


Tornadoes

Tornadoes are usually seen as very destructive forces, but one Canadian engineer believes that we can one day harness the power of the tornado to power entire cities. Louis Michaud believes that by pumping warm, humid air into his Atmospheric Vortex Engine (AVE), a chamber 200 meters wide with 100 meter tall walls, he can create an artificial tornado. The rotation of the tornado would then power wind turbines at the chamber inlets, creating enough electricity to power a small town. Michaud proposes using waste heat from power plants since they typically reject more than half of the heat they generate. He admits that the tornado would probably cause some extra precipitation in the surrounding area, but says that the whole setup would be inherently safe.


Save Energy – buy a cow: Bagging Methane Discharges from Cattle

We humans are notoriously poor at taking responsibility for our actions. So it should not come as a surprise that cows farting, excreting and belching is being blamed by some for climate change. In all seriousness though a 2006 United Nations report estimated that cows, along with other livestock like sheep and goats, contribute about 18 per cent of the greenhouse gases that are warming the planet — more than cars, planes and all other forms of transportation put together.

This is not without good reason since bovine discharges  are rich in methane, a gas that’s 21 times more efficient than carbon dioxide at trapping heat in the atmosphere. {Source: LA Times}

Researchers have developed a means of acquiring methane from cattle excrement and converting it to a biogas fuel that’s of a quality that can be fed into a standard natural gas pipeline. In Kern County, California, a company called Bioenergy Solutions uses that method to produce 650,000 cubic feet (18,406 cubic meters) of biogas from manure, enough to power 200,000 households. [Source:Levinson}

Argentina is one of the world’s leading beef producers. Herds amount to over 50 million cattle, outnumbering the human population. Scientists have created a special bovine backpack that captures a cow’s emissions via a tube attached to the cow’s stomach, and discovered that the animals produce between 800 and 1,000 litres of gas each day {Source:Zyga}

One might even call it a kind of wind energy.

Dancing Bodies

When was the last time you made the world a better place by clubbing all night? Sustainable Dance Club was formed in the Netherlands with the idea that dancing bodies could create enough kinetic energy to actually power a building. Lots of music festivals have turned to bicycle generators to power their concerts. And some hipster bars are even making customers pedal for a few minutes to get their pitchers of perfectly blended margaritas. Rotterdam was the first to install the Sustainable Dance Floor, but SDC is looking forward to taking their technology all over the world to other clubs, festivals, and wherever there are people willing to dance for the good of the Earth.

Projects range from permanent installations at museums in Miami and Philadelphia to pop-up events around the globe in Vancouver, Shanghai, Salvador and Abu Dhabi. Their mission statement is “To create personal experiences where sustainability and fun are combined. To inspire (young) people worldwide to adopt a more sustainable lifestyle.” They hope to spread the knowledge that living a greener lifestyle isn’t all about sacrificing the things you love.

Gym Power

Several innovative gyms are popping up that convert human energy into useable electricity. One of them, in Hong Kong, has exercise machines that look perfectly ordinary from the outside, but have generators inside that create energy from movement. So while you’re busy sweating it out, your efforts are creating electricity to power the exercise console and supplement the electrical juice it takes to keep the overhead lights on. The owner of the gym maintains that the average person can generate about 50 watts of electricity per hour on the machines. {Source “Blume”}.

Then there’s the Pedal-A-Watt bike stand, which works by powering a generator with the movement of the bike’s rear wheel, comes with an optional PowerPak that stores the energy you create for later use. The PowerPak has an outlet where you can plug in and power any appliance that runs on less than 400 watts of electricity. For a frame of reference, a large television uses around 200 watts, a stereo 20 watts, a desktop computer 75 watts and a refrigerator 700 watts {Source: Convergence; Tech 3; Inc.;HTW}

Clean and healthy energy is starting to catch on in U.S. gyms. There are now converters on exercise equipment in more than 80 locations in North America, including My Sports Clubs in New York City and Washington.

The Green Microgym, a 3,000-sq.-ft. (280 sq m) gym has more than 200 members, is doing so well that owner Adam Boesel has started franchising. The gym doesn’t generate enough electricity to be carbon-neutral yet, but if all the equipment gets used at one time, it can produce twice as much as it needs to run the facility at any given moment. {Source: Time}

Johannesburg’s Northern Suburbs Bucks the Buying-To-Let Trend

Although the FNB 2012 Estate Agent Survey indicates a slight rise in the buy-to-let buying in the market, its second quarter results show somewhat poorer general residential market demand.

Buy-to-let purchases are assessed by the survey to have increased to 11%, from 10% in the previous quarter. The growth in the percentage of buy-to-let buying is certainly more noteworthy when measured from its low point of 7% in 2010.

Having made that point it’s important to note that the percentage remains poor in comparison to the estimated 25% back in 2004 at the apex of the property surge. In addition to broad based financial pressure on households, despite interest rates being at a record low, the very ordinary performance of the rental market would also not appear to make buying-to-let a particularly exciting option at this point in time.

According to StatsSA’s consumer price index (CPI) surveys, modest rental inflation which, given current house price inflation in the region of 8.9% year-on-year according to FNB data, would probably be doing little to increase average yields on residential rental properties. The CPI for rentals in the May CPI showed 4.47% year-on-year inflation, marginally lower than the previous quarter’s rate of 4.53%. After showing some promise of strengthening in 2010 and early 2011, the CPI for rentals has thereafter shown a weakening growth trend. This does little to make buying-to-let more attractive at present.

Given that interest rates are at a record low there should be no prizes offered for predicting a weak rental market.  Low interest rates equals more first time buyers and consequently lower rate of retention of young tenants. However some aspects of the rental market have improved. According to tenant profile network, the percentage of tenants that are in good standing with regard to rental payments was 81% in the first quarter of 2012. While this percentage is unchanged from the previous quarter, it is up from 79% in the second quarter of 2011, and well up from the 71% low reached in the recession early in 2009.

With this mind it may come as a surprise when Pam Golding Properties reports that the rental market in estates like Dainfern, Fourways Gardens and Cedar Lakes in Johannesburg’s northern suburbs is more healthy than ever, making properties in these areas a plum asset that can deliver reliable returns.

For expatriates, being far from home, a sense of belonging is a high priority together with comfort , security and access to amenities. Facilities such as good schools in close proximity, a club-house, tennis courts and a golf course go a long way to making a family feel at home, which is why these specific estates are proving so popular with foreign and local tenants alike.

As a kind-of niche market this demand is at least partly attributable to the strong demand from corporations, especially multi-national companies doing business in South Africa.

Companies seeking upmarket accommodation for their senior staff members for periods of between one to three years are attracted to these homes. Properties in estates like Dainfern, Fourways Gardens and Cedar Lakes are offering excellent returns to those landlords who have an understanding of this corporate market and its unique requirements.

One advantage of letting to this market is that landlords and their agents deal with reputable companies that are financially solid and reliable. This is most reassuring for those owners who wish to rent out their prestigious properties, many of which are acquired specifically for investment purposes,” says Jason Shaw, manager of the Fourways/Dainfern office of Pam Golding Properties.

These three estates are not unique since there are a plethora of such developments in the greater northern suburbs of Johannesburg. But they exemplify a niche market in the buy-to-let market that is strikingly bucking the mediocre trend.

Wind and Solar Energy Trivia for the Enquiring Mind

Two of the most prominent renewable energy sources besides hydroelectric power, are wind and solar energy. Read on to discover some facts to satisfy your curiosity and broaden your general knowledge.

Wind Power

Wind power is one of the oldest renewable sources of energy. As its speed doubles, its capability can produce an eightfold increase of power generation.

There’s nothing new about wind power, from time immemorial people have used the wind to pump water.

How does wind power work? The rotor blades of a wind turbine work like the wings of an aeroplane. As air passes over the specially designed blades, “lift” is created. This lift, in turn, sends the blades spinning in a circular motion, which drives an electric generator. When winds reach about twelve Km per hour, the rotor is engaged and the wind turbine begins producing power.

These days one modern turbine can produce enough electricity to support up to 290 homes.

As of April 2010, U.S. wind capacity reached more than 35,000 megawatts, achieving in 2010 alone what had previously taken two decades – the installation of more than 10,000 MW of wind power capacity. Currently 35,000 MW of wind energy will prevent an estimated 62 million tons of carbon pollution annually, which is equivalent to taking 10.5 million cars off the road.

According to a U.S. Department of Energy study released in 2009, wind energy could provide 20 per cent of U.S. electricity by 2030.

Currently, Denmark, Spain and Portugal meet between 12 per cent and 20 per cent of their electricity needs from wind energy. By contrast, wind power supplies about two per cent of the US’s current electricity needs. America’s wind resource is the largest in the world.

Solar and wind power systems have 100 times better lifetime energy yield than either nuclear or fossil energy system per tonne of mined materials.

At the end of 2007, worldwide capacity of wind turbines in operation was just over 94 Gigawatts.

The world’s largest wind turbine is currently the Enercon E-126 with a rotor diameter of 126 meters. The E-126 produces 6 megawatts, enough to power approximately 5,000 European households.

By 2010, Europe was leading the world in the development of offshore wind power.

Wind power makes up 40 per cent of new generating capacity installations in Europe and 35 per cent in the USA.

Solar Power

It would take only around 0.3 per cent of the world’s land area to supply all of our electricity needs via solar power.

With 4% of the world’s desert area, photovoltaics could supply the equivalent of all of the world’s electricity. The technology of Photovoltaics is the conversion of sunlight into electricity – also called “solar cells”.

The area of roof space available in Australia is enough to provide all of the nation’s electricity, using solar panels.

Weight for weight, advanced silicon based solar cells generate the same amount of electricity over their lifetime as nuclear fuel rods, without the hazardous waste. All the components in a solar panel can be recycled, whereas nuclear waste remains a threat for thousands of years.

The invention of the solar cooker challenged the consumers of the new millennium. In some places of the world, solar cooking is popular usually in large cities where the renewable heat of the sun generates enough energy. When sunlight hits a space with an area of 1 square meter, there is about 1,000 watts of energy from it on that surface which is hot enough to run the solar cooker.

Solar power is capable of providing many times the energy demanded by the world but it is an intermittent energy source as it is not available at all times. The amount of sunlight is dependent on location, time of day, time of year, and weather conditions. A large surface area is therefore required to collect the energy at a practical rate.

Experts believe that sunlight has the potential to supply 5,000 times as much energy as the world currently consumes.

Leonardo Da Vinci predicted solar industrialization during the late 15th century.

Horace de Saussure, a Swiss scientist, invented the world’s first solar energy collector or ‘hot box’ in 1767.

Albert Einstein won the Nobel Prize in 1921 for his experiments with solar energy and photovoltaics.

The amount of energy that goes into creating solar panels is paid back through clean electricity production within anywhere from 1.5 – 4 years, depending on where they are used. This compares with a serviceable life of decades.

The theoretical limit for silicon based solar cells is 29% conversion efficiency. Currently, polycrystalline and monocrystalline solar panels generally available have efficiencies anywhere from 12% to 18%. With the addition of solar concentrators, the efficiency of photovoltaics is eventually likely to rise above 60 per cent.

The Earth receives more energy from the sun in an hour than is used in the entire world in one year.

Germany has nearly half the world’s installed solar cell capacity, thanks to a generous subsidy programme. In 2006, the country installed 100,000 new solar power systems.

Global annual photovoltaic installations increased from just 21 megawatts in 1985, to 2,826 megawatts in 2007.

Solar energy prices have decreased 4% per annum on average over the past 15 years.

Manufacturing solar cells produces 90% less pollutants than conventional fossil fuel technologies

The solar industry creates 200 to 400 jobs in research, development, manufacturing and installation for every 10 megawatts of solar power generated annually.

A world record was set in 1990 when a solar powered aircraft flew 4060km across the USA, using no fuel.

The worldwide production of solar cells increased by 60% in 2004. However production has been hampered in the past years due to limited supply of silicon.

The Mojave Desert in North America houses the world’s largest solar power plant. It covers 1000 acres (4 km²) of solar reflectors.  It produces 90% of the world’s commercially produced solar power.

Africa’s Sahara desert, using 15% efficient solar cells, could generate more than 450 Terawatt per year.

About half of worldwide production of solar panels is consumed by Japan. Their purpose is mostly for grid connected residential applications.

Solar and Wind energy are viable and renewable alternatives to filthy coal, oil and other fossil fuels. We ought to encourage every effort by business and local government in pursuit of programmes that seriously encourage their use. One example is Eskom’s solar Geyser programme where people are encouraged to make use of the subsidy or discount that Eskom and insurance companies are offering to replace ordinary geysers with solar powered ones. You can make a difference.

 

(Sources: Iberdrola Renewables, American Wind Energy Association, Global Wind Energy Council) Energy Matters; Wikipedia; Professor Andrew Blakers; SolarBuzz; Worldwatch Institute; Science Daily; The Four Green Steps.)

Ballito Bay Bursting at the Seams

So you thought Ballito bay was just a holiday town in a quaint sugar cane-growing patch on the North Coast of KwaZulu-Natal. Think again.

Ballito remains an ideal holiday destination with fine weather and beautiful vistas but it also has a growing business district, excellent private schools and several top class shopping centres, cinemas, hospitals and hotels.

Macro level infrastructure is having a big impact. The combination of the King Shaka International Airport to Ballito combined with the Gautrain in Johannesburg mean a greater number of Jo’burgers are taking advantage of the ease with which they can commute. Real Estate agents report the increased numbers of people moving to Ballito from Johannesburg looking for a better quality of life and lower crime levels.

Ballito Bay Bursting at the Seams

Ballito has also become a residential destination for Durbanites and others from KwaZulu Natal as jobs increase along the North coast. Big developments like Bridgecity, Dube Port and the giant Conubria development are attracting permanent residents to the North coast areas. These are not once off events. Rather they have inertia of their own as they attract further development and support business. Many are looking to Umhlanga and Ballito to reside as the retail and commercial sectors grow.

For some time upmarket Zimbali and Simbithi have attracted the sales at the higher end of the market but other gated communities are growing and entry level prices are ranging from R780 000 to R1million. Similar to Umhlanga though buyers believe that Ballito is a sound investment over time that will increase in value. Regarding frontline properties, many of these are being financed with cash or small bonds, the level of confidence in the area is clearly growing.

Ballito’s light-industrial growth shows the potential of a future city. Last year saw the launch of Ballito Services Park North which brings on line 9 light industrial zoned serviced platforms totalling 18.5 hectares offering multi-use options from warehousing and factories to show-rooms, offices and mini units. With a scarcity of zoned and serviced land for sale north of Durban and around King Shaka Airport, this opportunity is very attractive.

ComProp, a leading local property management group, researched and concluded that  a broad range of tenanted investment properties in Ballito are yielding an average of 5.95% income return in the first year. From a capital growth perspective, property values in the area were not heavily influenced by the recession and vacant land prices have continued to grow in value. Given that there are only 112 serviced sites available between Ballito Business Park, Ballito Services Park and Imbonini, northern business land will soon be difficult to acquire.

There is debate about infrastructure in Ballito in that much has made of the well-kept and designed roads among other micro imfrastructure. Crime and grime are said to be at a minimum. However holiday makers in December last year expressed a great deal of frustration with traffic and water resources. Those who saw the lines of holiday makers queuing up for water to flush their loos last December may have written off Ballito as another South African town that can’t get its act together.

Ballito’s biggest shopping centre, Ballito Lifestyle Centre’s Bruce Rencken said to local newspaper North Coast Courier during the water crisis: “Although the water crisis was unexpected and disruptive to our operations during our peak trading period, we were able to continue trading and brought in water tankers and chemical toilets. Fortunately the customer shopping experience was not significantly affected and customers were generally very understanding. Nevertheless, there certainly was a negative impact on trade and the ‘holiday experience’ of our visitors. Hopefully this has again highlighted to the authorities the importance of and urgency with which all infrastructure upgrades are effected and implemented as this is fundamental to sustainable and responsible development in Ballito.”

Many unexplained and unaccounted for power outages occurred during the December/January period. Umgeni Water warned in October last year that massive industrial and residential development north of Durban was putting pressure on the provision of water. At the time of the crisis the utility said it had plans to upgrade the infrastructure in 2012.

Mayor Sibusiso Mdabe has gone on record as saying R2.2 billion would be needed to upgrade the water supply to Ballito, a disclosure that has made residents hot under the collar at the prospect of a rates hike to fund the infrastructure.

In the not too distant past 15% of a developments cost would go towards upgrading the infrastructure of the area, thus creating a sustainable system of development. This is how the old Ballito was built. Some locals are of the opinion that Irregularities began when this levy was dropped, thus allowing a huge amount of housing to be built without the required infrastructure. This has slowly compounded to cause the water shortages being faced today. Some argue that had the new housing in the region been catered for, the community would not be facing these problems.

iLembe district municipal manager, Mike Newton, has said that, provided there were no external problems such as severe weather or electrical breakdowns, there would be no need for residents to panic this year.

Mike Newton said to the press that “The team from Umgeni Water is busy constructing an additional supply pipe to the major supply reservoir to deal with additional demands of this nature, as well as upgrading the pumping stations from Hazelmere Dam to supply the additional requirement.”

Umgeni Water has assured residents that the infrastructure required to improve supply to the Avondale Reservoir would be in place before December 2012. So watch this space.

There’s no doubt that if Ballito can overcome its infrastructure hurdles its boom is expected to continue both commercially and residentially. Watch out Umhlanga.

Blooms and Weeds in Bloemfontein

You may be of the opinion that Bloemfontein is the land of roses, conference venues and legal battles but there are other rumblings that prove the city to be very much alive.

It appears that there is a combination of private enterprise coming to the party and local Metro intransigence in Bloemfontein. The life breathing in Bloemfontein is a force of progress but it’s not without some dissatisfaction.

 Despite the weakness of the economy, flat rentals continue to rise in the city. This is not necessarily the result of conventional market forces. A local agent has been quoted as saying that the shortage of rental stock is the result of local Metro’s limited vision regarding new development. Little or nothing has been done to allow developers to increase the density of their developments.

Issues include: no new sites zoned for flat development being laid out; despite zoning certificates being obtainable for single erven, a projection of the future and current zoning uses for areas of the city are unobtainable; town planning for outlying areas of small holdings in Bainvlei and Bloemfspruit, the only areas where effectively development can take place – have still not been incorporated into the city’s town planning scheme. A local Real Estate Agent sums the situation up: “no practical provision is being made for new areas for the building of flats and apartments despite the current shortage of this type of accommodation”.

It’s clear that there is a need on a national level to review town planning schemes to ensure that they are up to date.

Blooms and Weeds in Bloemfontein

On the bright side there is some movement in the residential housing market, there are several up and coming areas which are proving popular with young buyers. One such area is Langenhoven Park. The statistics provided by Lightstone Property Solutions show that 30% of buyers are between the ages of 18-35 years old, with just over 50% of properties sold in the area priced between R800 000 and R1.5 million and with an average selling price of R1.033 million. There is however, a very high demand for rentals, as the suburb is ideal for investors wanting to buy to let.

Another area in high demand is Universitas, the majority of property in this area is being bought by buyers in the age group from 36-49 years and are in the same price bracket as Langenhoven Park with an average selling price of R1.137 million. Another trendy new upmarket suburb which has high appeal is Woodland Hills Wildlife Estate. The average price bracket here is in the region of R2.2 million to R3.5 million.

According to Fritz König, team leader of Engel & Völkers Bloemfontein: “Property sales are indefinitely picking up in Bloemfontein as there are many new developments. Some of the major attractions are investors looking at investing in student properties.

Bloem A-Grade Office Rentals Broll

Bringing us to the CBD: Bloemfontein CBD office properties are in high demand and sought after by municipal, government contractors, colleges and training centres.  According to the Broll Bloemfontein Office Market Report, although vacancy rates in the CBD are high at 25 per cent, rentals are currently holding steady at R75 per square metre having increased steadily since the end of 2009. This area still sees a lot of traffic and retail is flourishing.

Bloemfontein has a lot going for it strategically: It’s the only major centre for miles around, it’s also the sixth-largest city in the country and the judicial capital of South Africa; it lies on the N1 between Johannesburg and Cape Town. There is a disproportionately large amount of tenancy from government and educational/training centres in the CBD. For example government tenancy is approximately 12 000 square meters.

Commercial property in the city has a great deal of potential. Johan Botha, portfolio executive at Broll Property Group says demand for office space outweighs supply and rentals continue to increase. Various old buildings are being upgraded, for example, Fed Sure Building and Allied House. Evidently there’s just a single erven available for development, an 11 000 square metre patch earmarked for retail and offices.

Brandwag and Westdene have also become highly sought after for office space. These areas are a favourite in the private sector especially with national companies opening satellite offices. Office parks and corporate buildings are in high demand with old houses being converted into office space. A new development, the 43 000 square metre Second Avenue Development is due to start in 2013, creating a whole new business district in an urban village setting. It has been said that the intention is to replicate the atmosphere of Melrose Arch in Johannesburg.

 An exciting retail development is the arrival of Bloemfontein’s own Makro. There are presently 16 Makro stores about the country. Makro, the trading name for Masstores (Pty) Ltd is a subsidiary of Massmart Holding Ltd. Massmart is a listed company recently acquired by the US titan Wal-mart.  The store’s arrival is an encouraging indication of the economic development in Bloemfontein.

Developed as a freestanding building located on the crossing between two major national highways, and featuring an impressive 840 open parking bays, with a GLA of 17 049m2, the store, to be developed by The Moolman Group, will be located on the western side of Bloemfontein, at the junction of the N8 towards Kimberley and the N1 freeway. The site offers superb visibility and straightforward access from Bloemfontein and the surrounding areas, whilst sufficiently proximate to all the city’s amenities. The store is due to open in October this year.

Also on the retail front, Bloemfontein’s faithful old Fleurdal Mall is undergoing a substantial refurbishment.  Work on the 25 year-old Fleurdal Mall anchored by Checkers Hyper and House and Home, began in October 2011 and is due to be completed in November this year. The most significant improvement to the property is an updated appearance and with the intention of modernising the atmosphere. There will be a new canopy cause-way that will link entrances two and three.

The centre’s being extended from its current size of 19 000 square metres to 25 000 square metres. Parking has been reconfigured for better access and flow. Trading is continuing through the refurbishment. Ackermans and Mr Price will be increasing their trading area.  New stores to occupy the space include: Milady’s, Contempo, Pandora, Lotters Pine, Rage Shoes, Hi-Fi Corporation, Nedbank and Capitec Bank among others.

Like all South African cities security is always high on the agenda. Edcon, the clothing and textiles retail group, together with Independent Newspapers presented the city of Bloemfontein with a mobile policing unit in June, as part of a wider Partnership Against Crime initiative designed to assist the South African Police Service.

 The hand-over of this unit, brought to 18 the number of trailers that the Edcon group, as patron of the programme, has subsidised at an investment of over R1 million since 2006. The unit is equipped to police specifications and costs around R80 000 a unit. While the majority of mobile policing units have been deployed in Gauteng, Mpumalanga, Polokwane and Cape Town, this hand-over in Bloemfontein is the first one for the Free State region.

There is certainly a diversity of property dynamics present in the Bloemfontein market. Like all South African cities there is some tension between local government and the private sector with much being expected of the private sector who do seem to be playing their part in trying to boost confidence in the city.

 

South African Shopping Centres Continue to Flourish

Shop ’til you drop – Google Image

“I always say shopping is cheaper than a psychiatrist.” Tammy Faye Bakker

It could be that shoppers are gradually showing an inclination and increasing ability to manage their debt.  Benefiting from the declining interest rates may also be a driving force. Regardless, shopping malls continue to demonstrate a suppleness in the face of pressures like increased fuel prices, electricity hikes and municipal rates increases.

Despite discretionary spending being under pressure, the retail categories of household goods, textiles, pharmaceutical and clothing remain well supported, said Johan Engelbrecht, director retail management for JHI Properties to Denise Mhlanga of Property24.com recently.

It seems that retail nodes where there is a sustainable flow of consumers, sales are performing well. Retail sales turnover for centres run by JHI for example report increases on average of seven per cent over the past year.

South African Shopping Centres Continue to Flourish.

JHI has renewed capital investment with the extension of Greenstone Shopping Centre near Edenvale. The shopping centre opened its new extension in December 2011 with fully let space of nearly 6 400 square metres. A new Edgars has dominated the launch and has been a great success with shoppers.

Rather than hold back or wait and see, JHI Properties intends to advance its retail business unit over the next few years and increase its portfolio of managed retail centres, including elsewhere in Africa. A revamp of the Kolonnade Mall in Montana, Pretoria North is on the cards for example.

Engelbrecht revealed that JHI has opened an office in East London since they intend to invest in an area of great expansion which stretches from Mthatha to Port Elizabeth.

The Cavaleros Group, that brought us Sheffield Business Park has made some significant investments into shopping malls of late. The property investment company spent R20 million making over Bedfordview’s  Village View shopping centre. The intention has been to keep the centre fresh and relevant, vital in the world of competing shopping centres. Apart from the overall refurbishment, three new restaurants plus a Steers and Nandos will enhance the dining appeal of the centre.

Village View in Bedford View – Cavaleros Group

Across the way in Norwood, Cavaleros Group owns the Norwood Mall. The mall sees some major reconfiguration taking place this year. An 1 800sqm Food Lover’s Market has been added to the upmarket retail mix. In the interest of improved flows and greater variety Mr Price Home, Rage, Crazy Store, Bata and Step Ahead are trading from new stores. Food Lover’s Market will open in August joining Norwood Mall’s collection of anchor tenants: Woolworths, Dis-Chem and Pick n Pay.

160 retail centres were developed nationally and are flourishing in townships and rural areas of South Africa between 1962 and 2009, covering about 2 million square metres of retail floor space and generating about R34 billion worth of business sales with an added 54 300 permanent jobs to the national economy since the 1980s.

In rural areas there are other dynamics involved. Rural shopping centres these days are benefiting from the Government social grants. South African Property Owners Association (Sapoa) report revealed that consumer spending is up 30 per cent in the last four years.  Naturally new shopping malls need to be strategically placed in order to avoid overtraded areas.

Marc Wainer of Redefine Properties says “I believe this is an ideal time to develop since interest rates and building prices are at very competitive levels.” He warns that this will not last indefinitely as contractor order books will start to fill up.

Elim Mall – Twin City Developments

With this in mind no doubt, Twin City Developments is developing a new community shopping centre, Elim Mall in Limpopo at a cost of R202 million. Twin City Development owns retail developments like Blue Haze Mall in Hazyview, Twin City Mall in Burgersfort and Twin City Mall Bushbuckridge. Phase one of Elim is to launch by April 2013 with nearly 50 shops.

More than 80% of shoppers within the centre’s catchment area currently shop in other towns. They will now have the convenience of a shopping centre within reach of their own community.

Nedbank is financing the development to the tune of R175 million. The gross lettable area (GLA) is 18 627 square meters with Shoprite as main anchor with a 3500 square meter store accompanied by a 2300 square meter Boxer store. Other features include a KFC drivethrough, an Engin garage and a 72 bay taxi rank.

Clearly Twin City has looked well into the future having purchased the adjacent land enabling it to extend up to 4500 square meters of GLA.

Also eyeing non metropolitan areas for investment is the Dipula Income Fund who already own the Blouberg and Nquthu Plazas which continue to flourish. The JSE listed company is investing R330 million into three shopping centres as it intends to advance its portfolio exposure to low-income households and spread its geographic base. The three malls are: the 6 000 square metre Randfontein Station Shopping Centre in Gauteng, the 14.700 square metre Bushbuckridge Shopping Centre in Mpumalanga and the Plaza Shopping Centre in Phuthaditjhaba in the Free State.

The purchases will raise Dipula’s portfolio to 181 properties with a total GLA of over half a million square meters. Retail property makes up 57% of the portfolio.

Endaweni in Diepsloot Extension

Investec Property plans to develop the 25 000 square metre new regional shopping centre to be known as Endaweni in Diepsloot Extension 10 at a cost of approximately R275 million. Endaweni Shopping Centre will be one of two centres, which will serve Diepsloot and its surrounding communities. Endaweni will link retailers directly to a community of about 150 000 people. The plan of the centre is such that it not only contains a range of national tenants but also accommodates a large quantity of restaurants, which are expected to be a major draw-card for the local communities. The mall is due to open in September 2013.

In November this year Limpopo’s Lephalale Mall’s first phase is due to open. Lephalale Mall is located at the corners of the main arterial Nelson Mandela Road, Apiesdoorn Avenue and Onverwacht Road, on the western edge of Onverwacht’s new CBD in a major residential growth node. It will serve residents of the established Ellisras town, Maropong and the surrounding areas.

Medupi Power Station Lephalale

The Lephalale Mall is a joint venture between Moolman Group and Uniqon (Pty) Ltd. The mall and surrounding node will ultimately consist of 70 000 square metres of retail and other commercial space once fully developed. The growing coal mining and power generating activities in the area are the driving forces behind Lephalale’s growing economy. The Waterberg Coal Field in Lephalale is one of the largest coal fields in South Africa. Lephalale Mall itself will be a catalyst in the area’s economic development, as it grows with its market, and attracts local spending.

The Moolman group was also party to a venture with Resilient Property and Flanagan & Gerard Property Development & Investment in Polokwane, Limpopo.  Another South African shopping centre destined to flourish,  The Mall of the North opened in April 2011. It recorded exceptional performance during its first year and continues to receive attention from retailers seeking to open stores at the mall. Driving its performance is its exciting retail mix of 180 shops with anchor retailers including Pick n Pay, Checkers, Edgars, Woolworths and Game, as well as a Ster-Kinekor cinema complex. Its tenant mix is constantly monitored against shopper trends.

Mall of the North won the South African Property Owners Association Innovative Excellence Award in Retail Property Development. It also won the prestigious Spectrum Retail Design Development Award from the South African Council of Shopping Centres.

Which brings us back to the city. Cape Town and surrounds in particular. Few new malls have been built of late but there is much upgrading and refurbishment.  N1 City, Tyger Valley Centre, The Blue Route Mall, Cavendish Square,  Somerset Mall, Canal Walk and the Promenade in Mitchells Plain have expanded or been given multimillion-rand upgrades.

Tokai’s Blue Route Mall

Work on Tokai’s Blue Route Mall will be completed in October at a cost of R83m. The upgrade expands the centre by 8 000m2 to 56 500m2. Upgrade construction on the northern suburbs’ 25-year-old Tyger Valley Centre started last March. The centre is being extended by 8 000m2 to 90 000m2 at a cost of R450 million.

Some analysts are suggesting that the market is marking time, that there is a consolidation in the retail property sector. However refurbishments and expansions continue and nothing seems to be stopping shopping malls opening and flourishing in rural areas. So either there’s still lot of people out there with money to spend or, in the words of Tori Spelling: “Bad shopping habits die hard.”

Johannesburg Inner city Renewal – Latest

Johannesburg’s inner city and surrounds continue to show signs of regeneration. Slowly but surely the streets really are being taken back.

BG Alexander in the inner city restored and managed by Joshco

Johannesburg inner city has nearly a quarter of a million residents living in approximately forty thousand units. Twelve per cent are in the R15 000 a month income bracket; eighty per cent earn R1500.00 or more. As many as 20% of inner-city residents are university graduates and 35% of these have technicon diplomas.

According to a survey by Trafalgar Property & Financial Services: the reasons given for choosing the inner city in which to live included affordability (22 per cent), proximity to work (11 per cent) and proximity to schools (11 per cent).

The goal of the Metro’s Inner City Regeneration Strategy is to raise and sustain private investment in the inner city, leading to a rise in property values.  One strategy is “discouraging sinkholes”, meaning, properties that are abandoned, overcrowded or poorly maintained, and which in turn “pull down” the value of entire city blocks by discouraging investment. There are two names that are certainly discouraging sinkholes in the inner-city and that’s Joshco and TUHF.

Pontebello in Hillbrow refurbishment funded by TUHF

The Johannesburg Social Housing Company (Joshco) was established in 2004 by the City of Johannesburg to provide affordable rental housing to the lower income market and to help eradicate the housing backlog.  At present, it manages more than 5 000 affordable rental accommodation units and has reduced default on payments from 87 per cent to only 6 per cent since it started operating in 2006.

In 2010 Joshco received the United Nations’ 2010 Scroll of Honour award for its holistic approach to providing shelter. It is the world’s most prestigious human settlement award; it recognises initiatives that have made outstanding contributions in various fields such as shelter provision, highlighting the plight of homelessness, and leadership in post-conflict reconstruction.

Joshco only provides rental accommodation to residents in the lower income bracket, and tenants can’t claim ownership or don’t become the legal owners of the property they’ve rented for a number of years.

The company intends expanding its housing portfolio to more than 10 000 units by June. Its aim is to develop over 11 000 housing units in Johannesburg. It currently manages about 7 600 rental units, of these, only 930 are instalment sale for ownership.

Recently eight buildings in derelict areas in the inner city have been refurbished by Joshco. Areas include: the CBD, Berea, Joubert Park, Hillbrow and New Doornfontein. These building were previously occupied by criminals and squatters.

The buildings were completely gutted and transformed into affordable communal accommodation. Rent is from as low as around R600 a month.

Casa Mia refurbished Hillbrow building by Joshco

In an interview with the Star Joshco chief executive Rory Gallocher said: “Years ago the only thing property owners wanted to talk about was selling up and getting out. However, things have changed. On the occasions that we have been in the market to buy property in the inner city, we have experienced difficulty finding buildings that are priced at a level that would allow it to work for our market because of high demand.”

The vision for individual buildings is “order and liveability” to replace “chaos and discomfort” through basic management. Joshco says it believes in proper management of buildings by implementing a well-informed and factually accurate plan, where rules are clearly stipulated.

Joshco is very mindful of the fact that inner-city residents are not middle or high income salaried people. A substantial amount are in low-wage employment and who are self-employed, either trading or doing domestic work. Many are small entrepreneurs whose activities function because of their location.

Gallocher believes that good management of buildings will attract business to the inner-city. The latest buildings are Casa Mia in Hillbrow, once a degraded residential hotel that was invaded; The Chelsea in Hillbrow; MBV in Joubert Park; La Rosabel in Hillbrow; Raschers in Loveday Street; Selby and Europa House in the CBD; and Lynatex in New Doornfontein, which is used for temporary, emergency accommodation.

On a slightly different tack is Johannesburg urban renewal property group TUHF (Pty) Ltd. TUHF provides commercial property finance to emerging and established entrepreneurs to buy and refurbish affordable rental housing residential buildings in the inner cities of Gauteng, Durban, Pietermaritzburg and Port Elizabeth.

TUHF is making a significant contribution to the purging of dereliction in the inner-city and the development of housing that is affordable and secure. So far TUHF’s footprint is R125m in equity investments.

TUHF has assisted entrepreneurs through financing and business support to purchase and refurbish 490 derelict buildings over the past nine years. The focus is on quality rather than quantity deals, to minimise the risk of bad debt.

Monis Mansions refurbishment funded by TUHF

The company has attracted equity investments from large and well respected organisations, namely the Public Investment Corporation (PIC) and the National Housing Finance Corporation (NHFC).  The NHFC’s current investment is a debt equity conversion of R75 million converting R40 million for 20% of B shares and R35 million for preference shares in TUHF.

Futuregrowth’s Development Equity Fund, on behalf of its clients, has acquired a 12.5 per cent equity stake in TUHF. TUHF, together with its investors, foresee an increase in investment in inner cities, and the stimulation of business which will lure companies to return, expecting a boon for the restaurant trade as well as eventually inspiring leading chains to scout out the area as well.

Futuregrowth was the first institutional investment manager to provide TUHF with a loan facility that has increased from R50m to R350m in a five year period. The Development Equity Fund is part of Futuregrowth’s suite of socially responsible investments.

TUHF previous success stories include: Pontebello in Hillbrow; Monis Mansions in Johannesburg’s CBD; Allenby Court in Highlands; Hollywood Heights in Hillbrow; Waverley Court in Hillbrow and Avon House in the Fashion District of Johannesburg. Most recently Dolphin Court, in Joubert Park was revamped with funding from TUHF.

Joshco and TUHF are making huge contributions to inner-city renewal in completely different ways. In essence their work is complimentary and supplementary in a diversity that tackles renewal in overlapping housing/accommodation markets. With such confidence in mind the residential market in the inner city seems unexpectedly rosy given the slowness of the economy.  One can’t help wondering how long it will take for the big banks to wake up and catch on.

On your marks, get set…Africa! SA Business moves into Africa.

On your marks, get set…Africa!

In the face of declining world markets and the lack of prospects in the West, Africa is looking more and more like a place to do business.

Africa, with all its angst and chaotic history and struggle with social upheaval is showing a resilience and sense of survival at which we can marvel.

The International Monetary Fund anticipates emerging economies in general and Africa in particular will expand by 4.5% this year and 4.8% in 2013. An interesting indicator has been residential property values, which, on average, rose by 8% in 2011. (AFDB Statistics)  Economic growth is expected to continue despite recessionary trends in some parts of the world.

Although income disparities exist across Africa an authentic middle class is evolving. It is estimated that sixty million African households have annual incomes greater than $3,000 at market exchange rates. By 2015, that number is expected to reach a hundred million.

Urbanisation is pushing up demand for all kinds of real estate:  office space, retail complexes and of course, housing. The growth of, and potential for, infrastructure projects abounds. This has the positive spins off for labour too.

South African business, it could be said, is scrambling. Recently Resilient, known for its successful serial development of non-metropolitan shopping malls outside of the major urban nodes, expressed dissatisfaction with local red tape and revealed it would spend more than 1 billion rand building 10 shopping malls in Nigeria.  The malls, 10,000 square meters and 15,000 square meters in size, will be built over the next three years in the capital, Abuja, and the city of Lagos respectively, the main commercial hubs. Shoprite, Africa’s largest food retailer, will be the major tenant.

Wal-Mart-owned Massmart last month said it would invest in African growth and hoped to grow its food retail business from about R7bn to about R20bn over the next five years. But it’s South African food retailers Shoprite and Pick n’ Pay’s whose sites are firmly set on Africa. Pick n Pay has increased its African growth, using R1,4bn from the sale of Franklins in Australia.

Shoprite, which has only about 123 stores in Africa compared to about 1730 locally, says another 174 stores will be added in Africa next year.  Pick n’ Pay on the other hand is aiming to expand into Malawi and the DRC within the year. The food retailer has over 93 stores in Africa North of South Africa. Zambia and Zimbabwe are on the cards for expansion. Woolworth, not to be outdone has opened 14 stores through its Enterprise Development Programme  in Nigeria, Uganda, Zambia, Kenya, Mauritius, Tanzania and Mozambique. Woolworths currently has a presence in 12 countries with nearly 60 stores across Africa, excluding South Africa.

Further investment in the African playing field could come in the form of buy-outs of South African food retailers by the likes of Tesco, Carrefour and Metro. Wal-Mart’s consumption of Massmart has already been well publicised.

On a slightly different tack, Don’t Waste Services (DWS), the largest on-site waste management company in South Africa, has publicized their intention to open affiliates in Botswana, Kenya, Zambia, Mauritius and Swaziland. The company – is active in the mining, retail, hospitality, healthcare and large industry markets and currently provides waste minimisation services to 300 corporate clients across their portfolios of sites. Having recently expanded into Mauritius, the company is keen to duplicate their successful model in other African countries.

On the real estate front JHI Properties Zimbabwe has added another 15 properties to its portfolio of over 50 since it is to manage unlisted property investment fund, Ascendant Property Fund (APF). JHI has already expanded from its South African home base into Zambia, Ghana, Namibia, Botswana, Lesotho and Nigeria. This further expansion comes as Zimbabwe is experiencing exceptional growth in the retail market at a rate of some nine per cent plus year on year. APF CEO Kura Chihota anticipates actively pursuing growth in Zimbabwe. “With Zimbabwe’s anticipated economic growth rate of nine per cent per annum, prospects look promising.” said Chihota recently.

JHI Properties was also appointed as the leasing agents for Joina City, a new upmarket ‘urban city’ in Harare incorporating four floors of retail with 18 floors of offices. Anchor tenants include big South Africa names Spar and Edgars.

Bringing us to Bigan. Bigan, that brought us Mombela Stadium in Nelspruit, Olievehotbosch Ministerial housing projects, the Oliver Tambo International Pier Project and ESKOM Coal Hauleage Road Repair, is negotiating partnering with Ghanaian real estate companies to build affordable houses for the poor and middle income earners.

Ghana’s housing deficit stands at about 1.5 million units. Bigan believes it has the capacity to deliver and help reduce Ghana’s housing deficit. Based on their experience in South Africa, Bigan’s Emmanuel Kere believes that the company can “support not only the (housing) sector in Ghana but infrastructure development in general.”

Bigan claims to build 30 000 houses in South Africa annually and has a lot to offer Ghanaian companies. Chairman of Bigen Africa, Dr Iraj Abedian said that the company was attracted to Ghana because of the country’s stable political environment and friendly business atmosphere. Bigan makes no apology that it intends to use Ghana as a springboard to launch operations into Senegal, Liberia, Nigeria and Sierra Leone.

The South African government is not exempt from taking an active role in the scramble for Africa either. The Public Investment Corporation (PIC), which manages over a trillion rand on behalf of civil servants, which accounts for 10% of SA’s JSE market capitalisation, is looking for potential private equity partners.  10% of the portfolio is to be invested outside South Africa, R50 billion is reserved for African investment.  60% of that, about R30 billion, will go to private equity according to PIC CEO Elias Masilela in an interview with Reuters. The PIC is likely to be a player in infrastructure investments as countries on the continent build and revamp their roads, dams, hospitals and power stations, he said.

Public Investment Corporation which has a presence in 18 African countries weighs in on infrastructure. In an interview with Goldman Sachs’s Hugo Scott-Gall, Sim Tshabalala deputy CEO of the Standard Bank Group said: “in most of sub-Saharan Africa infrastructure has all but collapsed, or is limited. It has to be rebuilt, so there are massive opportunities in project finance. A lot of infrastructure will be refurbished, mainly with support from the Brazilians and the Chinese. The link we have with ICBC (Industrial and Commercial Bank of China) also helps us identify opportunities and execute on them. In our case, ICBC is a 20% shareholder.”

Standard Bank, as a South African player in the African market has positioned itself well as a go between or conduit for other BRICs partners wanting to interface with the continent. Standard Bank has a cooperation agreement for example, to identify Chinese corporates and SOE (State owned enterprises) that are looking for opportunities on the continent.

Standard Bank has its work cut out for it as Intermediaries for foreign capital since it is estimated that Africa needs about US$90 billion a year to deal with its infrastructure backlog and currently is raising about US$70 billion. This is coming from a combination of sources: taxes, the banking system, and a large amounts coming from outside – risk capital. The banking system in individual African countries does not have the capacity to fund all of the necessary infrastructure activities, so there will be a lot of reliance on international capital markets and the international banking system.

Standard Bank is not alone in its growing presence in Africa, ABSA has received regulatory approval to start a greenfield insurance business in Zambia, bringing to four the number of sub-Saharan countries where the Barclays-owned bank will have insurance operations.  First National Bank (FNB) has revealed plans to invest nearly R2bn over the next 12 months as SA’s third-largest bank by customer numbers, to expand its footprint in SA and Africa. It is believed to be considering an acquisition in Nigeria and has sent scouting missions to Ghana. The bank, which operates in eight countries in Africa including SA, has about 7 -million customers in SA and 1,1-million in Africa. FNB Tanzania was its most recent addition, while its Zambian unit has already announced plans to have a nationwide branch network by 2016.

There’s no doubt that some South African companies are viewing Africa with a greater sense of urgency. The European Union’s financial troubles have revealed South Africa’s vulnerability to European troubles. More than 25% of South Africa’s bilateral trade is from the EU. If GDP in Europe declines that indicates fewer goods being shipped from Africa. This does not bode well for South Africa. Expansion and investment into Africa can broaden South Africa’s horizons not to mention its vulnerability.

But in the words of Standard Bank’s Sim Tshabalala: “As a South African I would love to believe in the sustainability of the country’s national competitive advantage as an entry point to the African continent. Increasingly, people are able to go directly to Kenya and Nigeria, for example, without going through South Africa, because these countries are building the necessary hard infrastructure and the required financial and legal infrastructure.”

So it seems that South Africa’s competitive advantage is diminishing as the rest of the continent develops. In the meantime many companies are seeing the gap and heading into the fray. It seems that the future really is now.

So I asked my 85 year old dad…“what do you think of when I say ‘Green’ dad”.

So I asked my 85 year old dad: “what do you think of when I say ‘Green’ dad”. There was a brief crackle on the phone and then came: “mould.” The generation gap on matters Green is clear.

I have to admit that as a 43 year I too didn’t think of the practice of making modern day sacrifices in order to conserve the rapidly depleting fossil fuels, when the word Green came up. Rather I would think of someone new on the job, who parks in the bosses bay on the first day, a ‘Green-horn’ if you will, it’s best not to mix those two words up.

Or perhaps “Green Fingers”. I used to have “Green Fingers” when I was more involved in our garden or is that having a Green Thumb? It means the difference between getting anything to grow and creating a micro-desert.

But the search for a Green definition remains elusive: The movement to green has been nearly a thirty year process beginning in the 1970’s with the solar-energy craze.  Early in the 1990’s for example, the green building movement began to take hold.  Expanding our thinking and consideration for the larger picture of the total environmental impact, thus driving demands for materials, commercial and home designs offering reduced long term costs, healthier living, greater efficiency and sustainability.

But for me Green is for gunge: Gangrene from war stories, brave soldier who fought in the trenches and got the Dreaded Lurgy. Then there’s the sludge down on Zoo Lake before the big clean-up of whenever-it-was.  Then there’s beautiful, wonderful mucous. Oh yes, oh quivering parent – there were those nappies that….never mind. Green gunge is every little boys early fascination until puberty hits then green becomes just another colour.

One mini Green definition I heard somewhere, went something like is this: “meeting the needs of the present without compromising the ability of future generations to meet their needs.” A little whimsical with a touch of daisy and shoo-wah, but pleasantly unimposing.  I rather like it.

Depending on where you are applying the term Green, ‘sustainable design’ may be a good substitute. True sustainability embraces a commitment to see the world as interconnected, to understand the impact our actions have on others and our environment, and to nurture the offspring of all species that will inherit the planet. To become truly sustainable, it is vital to equally address social sustainability, economic sustainability, and environmental sustainability like three legs holding up a stool. Okay, a little preachy.

The truth is, the Green movement is now orthodoxy, mainstream, convention if you like. It’s no longer the fringe realm of hippies and New Ages or people with pony-tails in general. For example, Green construction is huge in South Africa now and Green Stars are a coveted reward.  It reminds me of my children when they were of the age when a gold star on the forehead for good behaviour was the most coveted award in preschool. Now we have pinstriped executives scurrying around fulfilling the requirements of the Green Buildings Council so as to acquire more Green Stars for their buildings.

As if Green building isn’t enough we have green nappies, green fuels and green political parties. But a new interesting one I discovered is “green-hypocrisy”. Green campaigners argue that cheap short-haul flights have fuelled a massive hike in carbon emissions over the past few years. Celebrities in particular are criticised for struggling to reconcile their well-meaning efforts to develop green credentials and the demands of the modern world.  Sienna Miller and Chris Martin preach the importance of being ‘green’. They recycle obsessively, insist on green nappies and compost every scrap of organic vegetable peeling and they’re not slow to tell you about it. Yet they jet set the world over producing a carbon foot-print bigger than the rest of us.

It’s tough at the top. Looks like you can’t get away with anything these days. Did I say Carbon Footprint, let me tell you what my 85 year old dad said when I asked him what he thought of when I said Carbon Footprint….

 

Being Prepared to Pay the Price of Going Green

One may argue that ‘going green’ is not a sacrifice but rather an investment. Currently, green expenses are concealed. In the pursuit of all matters Green do we consider the concealed expenses? Let’s look at some common and not so common sense examples.

Home is Where the Heart is: the Micro Level

Seeking out the concealed expenses of going green requires common sense and no shortage of balance. A for instance:  if you change from disposable nappies to towelling nappies you may preserve some trees; then again, you must now acquire a solution to cleanse those nappies without inflicting harm on the environment somewhere else. Similarly you will need to consider the environmental impact of producing the towelling nappy.

It’s all about research and how much effort you are prepared to put into this process. Then you need to stay the course, unlike those guys who menacingly change lanes on the highway and end up reaching the same destination as everyone else milliseconds sooner. Not finishing what you started may just increase your expenses. So pick a lane and stick with it.

A few practical examples.

Concealed expenses exist in so-called ‘green’ plastics; we do not see the waste in the manufacture of the product, or the disposal of it. Glass is still a far better choice, no matter how ‘green’ the newer, lightweight plastic bottle is said to be.

Preparing a compost unit for kitchen scraps and other household waste seems like a good move. But there are hidden expenses if you don’t research building it correctly. Creatures are attracted by the tiniest scent of decaying food. Rats, dassies and stray cats can move into your garden and home before you know it. It’s worth investing in an animal-proof compost bin, it will save on the concealed expenses of damages and presence of the abovementioned vermin.

Purchase the best and sturdiest recycle bins for your Mondi bags, (or whatever they have in your area.)  If these heavy plastic bins are damaged the impact is severe on the environment since heavy duty plastic is a land fill’s permanent resident. Metal cans are best since they will break down. The concealed expense is the heavy plastic to the environment.

Planting trees seems unlikely to have concealed expenses, but when you consider the long term damage potential to water pipes, septic tanks and sewerage pipes, not to mention building foundations in just a few years of a poorly positioned tree, one can see why some common sense research is required. It may be the difference between gutters filled with fruit or lovely shade on a summer’s day.

There are concealed expenses to growing your own crops too. It’s important to factor into the equation the watering of crops, cost of tools and whether you’re prepared to do the labour yourself. Of course physical exercise is a plus on this scale. The rewards of healthier, fresher and more convenient food goes without saying, but it’s not free.

Finally products: Many consumers are prepared to pay a higher purchase price for green products. As many of these products have been marketed for relatively short periods of time, demand and supply for them is still limited and prices are higher due to a lack of significant economies of scale that are there for truly mass products.

Additionally the technologies entrenched in these items are new, keeping manufacturing costs high until companies figure out more efficient and cheaper ways of building these novel products. So the concealed expense is present but it seems it’s also understood by the consumer. Similarly, upkeep and repair costs will be higher than for conventional products, for the same reasons that product purchase prices are.

At the Macro Level

Most areas in South Africa average more than 2 500 hours of sunshine per year, and average solar-radiation levels range between 4.5 and 6.5kWh/m2 in one day. Solar power is a viable option for the future of power at the macro level, an ultimate green dream. But there are concealed expenses.

While it may seem like a wonderful notion to never have to pay for electricity again in favour of free, natural energy forms such as wind and solar power, the actual process of switching to this green living lifestyle can be exorbitantly expensive. While over time, these energy saving installations would pay for themselves and save you money in the long run, many people cannot afford these installations. Solar panels for example are incredibly expensive to the point where only the wealthy can afford them.

One redeeming situation is the Eskom Solar Geyser initiative whereby home owners are encouraged to replace their geysers with solar powered units subsidised by Eskom. The window opportunity closes in 2014 though.

Other rumblings are coming from Cosatu since many local firms producing solar power components have closed down due to cheap foreign imports. The resulting job losses are a not so concealed expense of going green.

On the wind power front, the Cape seems to be leading the way: applications for at least 88 wind farms have been received by the Eastern and Western Cape authorities and some of these wind farms are expected to have as many as 600 turbines located on them. Each wind farm application has to be accompanied by an environmental impact assessment. Each turbine is between 80 metres and 120 metres tall, the height of a 20-or 30-storey building.

While there has not been much public response to the wind farms, some communities have already lodged objections against the planned wind farms and one project, in Brittania Bay, has been delayed because of opposition from residents of the town. Elsewhere in the world objections are raised due to the harm caused to the environment, sound pollution and tarnishing of the natural scenery. Hence there is a concealed expense to consider there too.

So there are many ways to go green in the  world but a word to the wise is to do it right, do the research and use common sense and weigh up what you’re prepared to spend/sacrifice when you’ve calculated the concealed expenses.

On the one hand we can save money by taking shorter showers instead of long baths to reduce water consumption, turn off appliances, cell phones and computers when not in use and to conserve battery power (subsequently reducing the need to charge them as often.) On the other hand there is a price to pay for “going green” whether it’s capitalising poor communities to acquire solar powered geysers or compromising the beauty of nature with wind farms.

The Environment has one fundamental code that nothing is squandered, and all is a nutrient for something else in the cycle of life.  It’s also true that, there’s no free lunch.

Western Cape Tourism on the Offensive

According to Tourismrsa.com the Western Cape only brings in 13% of South Africa’s domestic tourism revenue or R2,8 billion. That compared to KwaZulu-Natal with 26% of revenue or R5,7billion. But tourism in general grew by 5% in the Western Cape in 2011 contributing 10 per cent to the province’s gross domestic product (GDP) creating 70 000 jobs over five years.

The Western Cape Tourism department is mindful of the need to “encourage our locals to travel more within our cities. We need to reinvent our tourism sector and rethink the way we are doing things” Tourism MEC Alan Winde is reported to have said recently.

Mossel Bay and Plettenberg Bay are among coastal areas under pressure to refurbish, renovate and develop. Western Cape government’s Tourism department has announced a seafront development plan incorporating and connecting Kalk Bay, Muizenberg and Gordon’s Bay among others.

Previously disadvantaged communities seem to be targeted to become involved both as tourists and as proponents of tourism in their greater areas. Areas intended to benefit from upgrades to their tourism and entertainment infrastructure include Masiphumelele,  Ocean View and Mitchells Plain.

Fish Hoek will be paired with Masiphumelele and  Ocean View residents with the intention of making it a friendlier tourist destination. Formal stalls for craft work and displaying art in general will adorn the beach front.

Kalk Bay’s Main Road is to be revamped connecting communities previously effected by the Group Areas act. Muizenberg’s old retail and culinary district is to be refurbished and developed too.

Recently Tourism MEC Alan Winde referred to projects in Lambert’s Bay and Cape Agulhas as model examples of where communities previously excluded from decision making  were given the opportunity to become part of the process in the upgrading of their surroundings. An area like Monwabisi is to be similarly the target of investment.

“We need to encourage our locals to travel more within our cities. We need to reinvent our tourism sector and rethink the way we are doing things,” Winde said to the Cape Times.

The knock-on effect to properties in these areas is expected to be very positive. As upgrades take place for infrastructure and retail spaces, commercial nodes will increase in demand. Subsequently residential properties will find themselves on the up and up as areas improve and demand increases.

Meanwhile at the other extreme of the province next to the Eastern Cape Border, Plettenberg Bay’s ten-year-old plans to build a small boat harbour may be coming to fruition with an invitation to residents and interested parties to take part in an environmental impact assessment.

In March, Bitou council put pressure on Western Cape Marina Investments to take the small boat harbour project forward or lose the contract. WCM which won the tender in 2002, has finally  released  a document detailing designs to build the harbour in the Piesang River mouth, besides the Beacon Isle Hotel.

The development includes construction of residential blocks on either side of the river with a commercial zone to replace the derelict edifice which accommodates the Moby Dick restaurant and its adjacent buildings. The intention would be to transform Plettenberg Bay’s Central Beach area into a modern waterfront with a broad tourist friendly appeal.

The Central Beach is to be developed, becoming the site of a number of residential and commercial properties some of them multi-storey buildings which will completely change the look and feel of the beachfront . Dredging of the shallow Piesang estuary  will be mandatory  if it is to be deep enough to accommodate boats and moorings, and the harbour is to be flanked by buildings up to seven stories high in some cases on the northern and southern banks of the river mouth. The proposed small boat harbour  should also assist the operators of Plettenberg Bay’s whale and dolphin watching as well as charter fishing operations.

The overall expectation is that the whole enterprise will be the much needed shot in the arm to the struggling local economy with regard to construction contracts as well as job and tourism opportunities. The overall value to the local property market  is easy to underestimate given the long term nature of the developments.  Though tourism may suffer in the short term those who get into the market early will benefit as the dust settles and beach front occupancy climbs.

Looking at another example of development of Western Cape beachfronts we turn to Mossel Bay. A few important developments  in their area are likely to draw substantial capital as well as many people to Mossel Bay. Firstly Petro SA’s offshore latest drilling operations have received the go-ahead and work has  started.

Another project is the refurbishment of The Point precinct. This is the pivot of Mossel Bay’s tourism industry. The Point is about to be confirmed as a Provincial Heritage Site. The intention is to see it become a World Heritage Site within the next five years. In the refurbishment plan a public square is in the offing  as well as little carriageways and a museum.

A further development is to follow the successful model of the Victoria and Alfred Waterfront in Cape Town by creating a much anticipated waterfront. The Mossel Bay Harbour, the smallest of fully functioning harbours in South Africa is to be transformed into a tourism focused node with retail development a top priority.

Local government seems very much on-board . Minister Alan Wilde spoke to a local estate agency assuring them that growth in the Mossel Bay was a priority. An estate agent at the meeting said: “His message was that people needed to bring tourism and business together to move forward and reach for new goals.”

Some astute investors are already buying up property suitable for renting here, in the knowledge that demand for such properties will increase. With Petro SA’s new projects will come new staff needing rental accommodation.  This is expected to grow at 7% a year. The influx of professionals for this and the developments at the waterfront and harbour are expected by one estate agency to be a market that will grow by 4% a year, renting or buying. Also a 5% increase is expected for the conventional property market, including retirees and locals.

It’s clear that the Western Cape Provincial government is following the state’s lead in investing in local infrastructure. The CBD of Cape Town had a boost in infrastructure development in time for the 2010 world cup, now it’s the rest of the province’s turn.

There’s a new broom sweeping through Tshwane

There’s a new broom sweeping through Tshwane and it has some ambitious plans.

Beginning on the inside track back in April when the City corralled the Ethics Institute of SA and the South African Bureau of Standards into helping the city obtain a cleaned-up and world-class governance system.  Now on the outside, in the words of city manage, Jason Ngobeni, we want to take our city back “street by street.”

In essence Ngobeni’s talking about urban renewal. We’ve seen it in Jo’burg with the all the work of the Johannesburg Development Agency and we’ve seen it with Durban’s Golden Mile Beachfront restoration. Pretoria, like all South African cities has areas of decay that desperately need attention.

The main focus of the renewal is the inner city. Plans include the pedestrianisation of Paul Kruger Street from Pretoria station through to the National Zoological Gardens. Apparently the plans to do the blocks from Pretorius to Johannes Ramokhoase Streets and Church Square are imminent.

Looking at creating a kind of cultural precinct similar to the Johannesburg’s Newtown Cultural Precinct, is the Lilian Ngovi Square, ideally suited for the task given its open public space which will assimilate the State Theatre with the inner-city.

The safety and litter aspects of renewal are not forgotten by the city manager either. Ngobeni, in an interview on Radio 702, is quoted by the Pretoria News as saying that illegal taxi ranks and hawkers trading where they should not, are being “dealt with” and safety features such as illumination and CCV operations will be introduced.

Consistent with the on-going upgrading of government buildings running from the DTI in Sunnyside to the OR Tambo campus of the DIRC in Soutpansberg Road, Munitoria, which was partially damaged by fire back in 1997, will be replaced by the ambitious new council headquarters to be named Tshwane House.

Heading out of the inner city to Centurion the City intends rehabilitating the Centurion Lake and environs. The project is named SymbioCity. The ambitious and seemingly unlikely plan is to build Africa tallest building (110 stories) plus two other towers 80 and 60 stories high, plus hotels and the usual retail and convention spaces.  The project is on 10ha of prime land adjacent to the Gautrain Station. The project’s duration is expected to be eight years.

Not everyone is happy about this development. Local restaurateurs on the lake have expressed horror, not to mention anger as they claim not to have been consulted. Over 10% of office space in Centurion is presently vacant as reported by the SAPOA Office Vacancy Surveys. Questions of sustainable demand have been raised.

Time will tell if these plans will come to fruition. They come hot on the heels of announcements regarding the city becoming an ISO-9001 certified entity with the help of Ethics SA and the SABS.

Government has set a target for all municipalities to realise clean audits within the next two financial years, ending in March 2014. Tshwane has achieved unqualified audits in the 2010-11 and 2011-12 financial years so they are well on their way to achieving their ‘clean up’ goals.

Other internal goals include accurate billing of services, as this is a “critical aspect of sound and good governance aimed at ensuring sustainable use of the city’s resources” said Tshwane mayor Kgosientso Ramokgopa recently.

One may argue that this has been one of the foundational challenges in local government across the country, including Tshwane. To remedy the situation, Tshwane will, in the new financial year, launch a rollout of prepaid electricity meters.

That of course leaves the controversial matter of the city’s name change and whether that’s a matter for a new broom or not. The municipality claims to have exhausted its legislative obligations with regard to the Pretoria name change.  AfriForum, have argued that the consultation process was insufficient. So watch this space for the outcome.

Pretoria’s new broom is sweeping inside and outside; hopefully when the dust clears everything will be as cleansed as proposed.

Are South African Hotel Rooms Oversupplied and Overpriced

The hospitality industry which boomed in South Africa in 2010 has admittedly had some post World Cup benefit. The industry has also shed some of its fly-by-nighters. However the debate continues as to whether hotel rooms are overpriced and over accommodated. Regardless, the question remains, aren’t hotels a property industry problem and therein lies the root dynamic behind the quantity and price of rooms.

Stepping back and looking at tourism in general we are reminded of what valuable foreign currency it brings into the country. The hospitality industry provides coveted direct employment too. The potential for growth is huge and its knock-on effect on the commercial property world worth taking seriously.

South African tourists, who make up the largest section of the market, have to bear the brunt of the high hotel room rates which are often aimed at the overseas tourist. Despite the belief that foreign tourists are ‘loaded’ there is some resistance to our higher room rates. By comparison Brazil, which is similar to South Africa in some respects, is geographically closer to most of the same source markets that we rely on for inbound visitors. Upscale hotels in the major cities of Rio de Janeiro and Sao Paulo reported average room rates of between $300 and $400. Although the South African equivalent is around $190 at current exchange rates, the difference can arguably be absorbed by the cost of travelling to South Africa, a destination which is generally regarded as a long-haul destination.

Here’s the rub: High room rates have the knock-on effect of an oversupplied market. Customarily this should lower daily room rates as a result of market forces of supply and demand. However what has been observed is a reduction in occupancy rates. In some parts of the world various solutions are formulated to deal with oversupply. On the other hand other governments have not interfered and left it to market forces. It is important from the outset to ascertain where this oversupply exists and to quantify its extent.

One intervention by hoteliers is to discount room rates. The down side to this is the unintended message that the value has decreased too. To then return to the higher rate becomes a negative movement. Another strategy, instead of dropping rates, is to add value, offering two-for-one deals where visitors get one night ‘free’ on top of the original booking, extras such as free bottles of wine with a dinner in the hotel restaurant or vouchers for various entertainment in the city are supplied.

Countering this there is the school of thought that sees this as only a temporary solution whilst hotels engage in a price war of undercutting rates. The visible nature of hotel rates means short-term occupancy gains are quickly offset as competitors rapidly follow suit in cutting rates. This leads to a lower priced hotel market yielding lower revenues in the face of normally unchanged demand, proving that rate discounting alone does not induce additional hotel demand.

Looking at the big picture, some would encourage government intervention for the tourism industry in general. A more competitive ZAR/dollar exchange rate will help make hotel rates more affordable for the inbound tourist market. The Department of Transport could relook at increasing the number of airport slots for international airlines. This would help bring more visitors  and bring down costs through competition.

One country whose government hasn’t been shy to intervene in the tourism industry is Ireland. A country very dependent on tourism. In the wake of the Global Financial Crisis Ireland’s NAMA (National Asset Management Agency)  took control of over a 100 hotels with the intention of circumventing bankruptcies of the operators through paying out the creditors and then removing the remaining stock from the market. As a result, competition in the market was reduced and room rates were stabilised for the entire market. Although the removal of competition is seldom seen as beneficial in a market economy, especially when taxpayers’ money is involved, such drastic action is a further indication of the seriousness of the hotel room oversupply problem and the extent to which some countries will go to protect their tourism industries.

Coming round to property, many would point out that hotels are, in essence, in the property industry, and construction costs are the capital outlay that hotel incomes and profits have to provide a return on. For the last decade, tender price escalation, as an indication of construction costs, has averaged 12%, indicating that hotel returns are diminishing.

One may argue that new investments in the hotel industry should only have been introduced into the market if the potential for the market was there to ultimately sustain the room rate. By 2008, most market commentators had already forecast the “property bubble” bursting. The SA Reserve Bank Governor issued warnings to businesses and consumers to reduce debt and to forgo acquiring more. Most hotels that entered the market without taking into consideration those warnings, perhaps should not have been built in the first place.

The higher-than-inflation building costs whilst South Africa is experiencing deflationary conditions are similarly to blame for the high average daily room rates. The materials, labour and overheads are also to be considered. Recently the rise in cost of materials has been much more than inflation and other building cost indicators. The largest construction companies were also recently investigated by the Competition Commission for anti-competitive behaviour. Some of them have come clean and have been penalised.

To quote Hotel commentator Makhudu in his online blog article: ‘Hotel Oversupply’: “For the investor, the opinions that room rates are greater than normal means that hotel properties are currently overvalued. Some bankers have gone further than conducting debt reviews. Instead of recalling loans they have on hotel properties they have gone and interfered with the market dynamics by unilaterally dropping rates. Established hoteliers have bitterly criticised the actions of so-called ‘zombie hotels’ which have been taken over by banks and are undercutting rates for the sector in general.”

Reading the market with the wisdom that many of the most experienced hoteliers have, acting with owners who resist the skittishness that has come upon many investors of late, decisions about room rates will hopefully be made with sober judgement and a steady hand. It makes little sense to kill the goose that lays the golden egg. We should cherish every tourist that comes our way and reward them with reasonable rates. History may just remember us according to how well we cared for our golden geese.

BMW Beats the Banks

Whilst the European crisis and it’s ripples to South Africa have got grey suited local bankers all in a Windsor knot, one motor finance company is putting its hand up making itself available for, what is believed in some circles, to be signs of better times ahead for residential property.

In a move that in itself may boost the whole house marketing sector, luxury car manufacturer, BMW, has made public its plan to move into the home finance sector. Actually BMW have been easing its way into this world for some time.  But now there is a drive to acquire a greater number of applications.

In pursuit of motive for the movement into the housing market BMW’s response has been a bold one.  BMW intends to counter what it considers to be extremely poor service by banks. It seems that banks are quivering in the face of implementing Basel III.

Basel III is the third of the Basel Accords. It was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis.

With the onerous requirements of Basel III on banks, one ought not to be surprised to see that non-bank players are becoming more prominent in the SA home loan market. We should expect this to continue. Expect that the standard home loan interest rate will have to be set one or possibly even two percentage points above prime, because the cost to the banks of funding these loans will rise that much.

Back to BMW, an investigation by Finweek found that: BMW Finance provided “better service, a more competitive interest rate & lower administrative costs than any of SA’s big 4 banks.” “FNB was the only bank that came close to providing a deal that competed with that of BMW Finance. However, the bank’s initiation fees were higher & you are required to open a primary bank account with it.”

Bill Rawson of Rawson Properties said in a press release that the move by BMW Finance, in his view, makes complete sense because the existing BMW clientele base is almost certain to be an excellent initial target market.  The link-up between motor cars and homes also increases the security of the loans because homes are a more reliable asset than vehicles.

Watch this space for other motor finance houses following suit.

More up-beat than the effects of Basel III is the belief in a slow but steady upturn and recovery in the property sector. BMW’s lead with a plunge into the market is not all that has estate agents aflutter.

-          the average House Price Index is now at a two year high and rising at 8,6% per annum.

-          a 12% plus decrease in civil summons in the first quarter of this year.

-          a 42,4% decrease in liquidations

-          the number of 100% bonds issued has risen by over 35%.

(According to the FNB Property Barometer.)

Many analysts seem convinced that South Africa can ride out the effects of the European Financial Crisis. Although difficult times may be ahead they are unlikely to differ from the difficult times currently experienced.  The impression one gets is that though ill the market is not terminal and will continue to survive as a provider of necessary products for which there continues to be a market.

Resilient Goes Fishing – Africa’s gain is South Africa’s loss.

If not in South Africa, where does future expansion lie for the Johannesburg-based real-estate investment company Resilient, which has a local market capitalization of 11 billion Rand?

Des de Beer. Resilient Property Income Fund MD (courtesy FM)

 

Despite the World Economic Downturn South Africa has continued to successfully build and fill new shopping centres with both tenants and shoppers. Resilient has been at the forefront zeroing in on non-metropolitan shopping malls outside of the major urban nodes. Towns like Tzaneen, Rustenburg and Klerksdorp come to mind.

 

Resilient also holds strategic interest in Jabulani Mall in Soweto (55%), Highveld Mall in Emalahleni (60%), 70% of the I’langa Mall in Nelspruit and 60% of the Mall of the North in Polokwane . The firm also owns the Diamond Pavilion in Kimberley and the Tzaneng Mall in Tzaneen. Resilient holds 12.9% of the Capital Property Fund, 22.0% of the Fortress Income Fund – B and 18.6% of New Europe Property Investments plc. It also owns Property Index Tracker Managers, the company that manages the Proptrax exchange traded funds.

 

Now Resilient is looking to Nigeria for its future. This may have some people worried to see a big player like Resilient apparently ‘abandoning’ the local market. But looking offshore is nothing new to Resilient. Back in 2007 it was involved in the establishment of New European Property Investments, seeing shopping malls being built all over central Europe. The fund was initially listed on the London Stock Exchange, but went on to acquire a secondary listing on the JSE in 2009.

 

But looking locally, Patrick Cairns for Moneyweb writes: “Resilient’s strategy of managing shopping centres outside of the major centres in South Africa has been a very successful one. By focusing on under-serviced areas, the group has tapped into a growth story that has delivered excellent returns.”

 

Some would say this is due to a variety of reasons: for one, the reduced competitive playing field in small town retail nodes. Secondly shoppers in these towns are less likely to be debt-laden in comparison to their counterparts in urban areas. Increased levels of government social spending have also given more buying power to rural dwellers. This translates into a consumer group with high levels of disposable income available to use at Resilient’s shopping centres.

 

So what’s changed? According to The Citizen’s Micel Schnehage, Resilient’s Director Des de Beer explained that it’s the firm’s struggle with local government. “(Resilient) is hampered by extensive bureaucracy and red tape, resulting in expensive delays.” He went on to state that the era for Resilient to develop non-metro malls was over.

 

What seems to have been the last straw was the loss of documents pertaining to the Mafikeng Mall by local authorities 17 times. “They’re not accountable to anyone so they don’t really care,’’ said de Beer to the Citizen.

 

Apparently a partnership with the Sasol pension fund will result in the continuation of the development of malls in Secunda and Bergersfort.

 

But why Nigeria? Better yields is the short answer. De Beer is expecting returns of greater than 10%, and in dollars too. Resilient believes there is a sincere intention in Nigeria to see the country raised up and that officials are largely positive facilitators of that process. One may wonder if the company is being naive but recent reports of land being donated to developers to ensure development takes place certainly shows intent.

The Financial Mail reports that Resilient Property Income Fund Ltd plans to spend more than 1 billion rand building 10 shopping malls in Nigeria.  The malls, 10,000 square meters and 15,000 square meters in size, will be built over the next three years in the capital, Abuja, and the city of Lagos respectively, the main commercial hubs. Shoprite, Africa’s largest food retailer, will be the major tenant.

 

Bloomberg reports that Standard Bank Group Ltd, Africa’s biggest lender, and construction company Group Five Ltd. (GRF) are also partners in the deal.

 

The FM reports that De Beer would like to list the shopping centre fund in Nigeria once it reaches the right critical mass. This would be a similar approach to Resilient’s entry into Romania back in 2007 through New Europe Property.

 

One can’t help being a little concerned that if a big local player has chosen to go fishing elsewhere what are South Africa’s prospects as far as foreign investment goes? Time will tell.

 

It seems Africa’s gain is South Africa’s loss.

Johannesburg Tariffs – More of the Same

Jo’burg Flickr

With the first of July came the beginning of the new Municipal Financial year. Alas for Johannesburg ratepayers that means digging in deeper to those shallower pockets.

Most Jo’burg ratepayers would have had untimely notice of hikes services and rates due to the postal strike ‘conveniently’ coinciding with the mail drop.

Going back a few years to the previous rates shock, was the adoption of the Municipal Property Rates Act (MPRA). Henceforth property rates are based on the combined market value of a property, as stipulated by the (MPRA). In the past, rates were based on land value only.

The value of each rateable property in the City is listed in the General Valuation Roll. The General Valuation Roll is a legal document containing the property information for each and every rateable property in the city.

The market value of houses is much debated so how the municipality can be so certain is anyone’s guess. Earlier this year Erwin Rode and Associates, property economists and produces of what has popularly become known as ‘the Rode report’ caused an almighty backlash from Estate Agents for stating that the residential market was 25% overvalued.

On the other hand there are signs that the market is picking up or at least has reason to. The average House Price Index is now at a two year high and rising at 8,6% per annum; a 12% plus decrease in civil summons in the first quarter of this year; a 42,4% decrease in liquidations and the number of 100% bonds issued has risen by over 35%.(According to the FNB Property Barometer.)

The other part of the equation once the market evaluation has been done and you minus R150 000, is to multiply that by the “rate in the rand”. The Residential  Rate in the Rand was 0.004928 and is proposed to increase by approximately 6.7% to 0.005258 in the rand. Similarly the Business/Commercial rate is proposed to increase from 0.017248 to 0.01804 in the rand, 6.7%.

EThekwini (Durban) by comparison which is the leading city for both collecting and spending its budget, by the way, has a residential rate in the rand of 0.009 and Commercial/Business of 0.0179. Both of these are higher than Johannesburg’s’ and going up this municipal financial year. EThekwini is the country’s most expensive city to work or live in according to a South African Property Owners Association (Sapoa) commissioned study.

By way of a Gauteng comparison: Tshwane (Pretoria) has a 0.00209 rate in the rand for residential and 0.00418 in the rand for Business/Commercial. This has gone up by 12% for 2012/13 and another 10% in 2012/13.

Given that inflation is established at 5.7% can the municipalities justify the 6.7% increase in the rate in the rand? It’s generally accepted that increases above inflation simply accelerate inflation, and reduce the purchasing power of the rand. They hit hardest at the most vulnerable: the unemployed and pensioners. It was suggested by an opposition party leader in an open letter to the Jo’burg city manager that “The solution to the problems is to concentrate on the collection of rates revenue from the residents. If the City could pay the requisite attention to this problem, the extra money needed to provide the shortcomings in service delivery would be found. “

Johannesburg Tariffs

The burden to Jo’burg ratepayers doesn’t end there. Refuse removal is up 6.7% too. There are also increases for water and sewage.  Increases vary from 5,7%, up to a high of 15 %. The sanitation increase is 14.5% across the board. How these above inflation figures are justified is a mystery.

Eskom’s national increase of 16% touches everyone. In Jo’burg the proposed increases have been spread across the residents and businesses so that the lifeline tariff users will see an 11 % increase , the prepaid customers will see a 13 % increase, while the domestic tariff users  and businesses are having to foot an increase in the fixed charges of 5 % and the energy charge of 13 %. This means an increase for 1000kWh monthly usage of 11% , and at 501kWh at 10.7% . The business tariff increases are effectively 12% to 13% .

In the abovementioned open letter, an opposition party  expressed that the increases (Electricity) could have been reduced to “a maximum of no more than 10% across the board, except for domestic consumers above 2000kWh where a 16% increase could have been implemented, to fund the increases , the unaccounted for losses would have to be reduced accordingly by appropriate measures .” What those measures could be were not elaborated upon.

Coming back to rates, there is another side of the coin. The municipality may justify pushing up the rate randage in order to meet its demands because merely decreasing the rates could lead to the city being crippled financially.  This means that a process of reaching equilibrium is engaged. For example, where the property value has gone down, the rate randage is increased to compensate theoretically resulting in the ratepayer paying more or less the same amount.

Arguing the issue for the eThekwini Municipality in Durban, Head of Treasury, Krish Kumar said to the Daily News that while residential property prices may have gone down, commercial property prices may have gone up. This was taken into consideration.  He said the city wanted to avoid a situation where the municipal rates were based purely on the property prices because when the prices went up, the rates also skyrocketed. And when they went down, the city would not collect enough money and would fail to function.

Tariff Increases for four South African Cities

Tshwane Cape Town eThekwini Jo’burg
Electricity 12% 11.03% 11% 11%-13%
Waste Removal 25% 7% 7% 6.7%
Water & Sanitation See Separate Items 15% See Separate Items 5.7%-15%
Bulk Water Tariff 10% 6.5% 12.5%Res-15.5% Bus Combined
Sanitation 12% Combined 6.5% 14.5%
Rates 12% 8% 6.5% 6.7%

And what of non-payment? What is troubling is that while rates increase by 6.7% Jo’burg is expecting income to increase by 18%? The explanation for this by city spokesman Gabu Tugwana to the Star is: “What has been taken into account in that year-on-year is growth and tariff (which is limited to 6 per cent).” Regrettably, failure to pay by ratepayers is expected to increase.  Jo’burg’s budget for 2011/12 estimates  debt impairment at R1.76bn. In 2012/13, this is expected to go up 17 per cent to R2.05bn. Jo’burg’s adjusted budget for 2011/12 estimated debt impairment at R1.76bn. In 2012/13, this is expected to go up 17 per cent to R2.05bn then by 12 per cent the next year and 8 per cent the year after.

This brings up the issue of municipalities broadening their rate base. There is a need to look at Jo’burg’s indigent list and tap into those many RDP home dwellers who can afford to make some contribution.  If these communities are not engaged the culture of Apartheid days’ non-payment continues and a general culture of entitlement is fostered and the ratepayer base shrinks each year.

Tragically there just doesn’t seem to be the political will to pursue these options. Many would argue that the current rates model is based on shaky business foundations and is certainly not sustainable.  Regardless the Jo’burg ratepayers are going to have to fork out more this year.

Business Process Services/Outsourcing – a brave new world for South Africa.

To some Business Process Services may sound like yet another convoluted and ostentatious label applied by self-important people who may not otherwise be defined due to lack of substance, product or identity. Quite the contrary.

Business Process Services or Outsourcing, when it delivers, has the potential to genuinely lower administrative and operating costs, more quickly provide new services, improve customer satisfaction, and enhance focus on core business activities. Very simply, these

are the people that allow business people to focus on their core business whilst the likes of human resources, finance, accounting, contact centres. Document Management Services, Healthcare are taken care of by outsourcing to a third party

 

Without getting bogged down in detail, it’s sufficient to say that there are many divisions of BPS: there’s the back-office, like human resources; front-office, like call centres, there’s offshore and onshore BPS and even further breakdowns including IT based ITES-
BPO (Information Technology Enabled Service) and LPO – legal process outsourcing.

Looking at the big picture: the global industry is said to be growing by 40% per annum.  India is the world’s biggest player in the industry with revenue of US$10.9 billion from offshore BPS. It has a 6% share of the BPS industry in general but a 63% share of offshore BPS. On the other hand the South African call centre industry has grown by approximately 8% per year since 2003 and it directly employs about 54 000 people, contributing 0.92% to South Africa’s gross domestic product. Dwarf size compared to India but the potential is huge.

 

The South African Government’s upscaled Industrial Policy Action Plan (IPAP 2) has identified Business Process Services (BPS) as a key sector for investment attraction and job creation. The South African Government implemented a BPS or Business Process Outsourcing and Offshoring (BPO&O) incentive programme from July 2007. It is claimed that during the period July 2007 to March 2010, the incentive resulted in the creation of at least 6 000 new jobs and attracted R303 million in direct investment.

 

Since then, after negotiation with the private sector a further proposition has been made with the Monyetla Work-Readiness Programme, a dedicated investor friendly set-up process, and a

programme to improve industry service standards, in order to position South Africa as a preferred location for BPS operations.

 

Monyetla, which means ‘opportunities’, was launched in 2008 by the Business Trust, the Department of Trade and Industry (dti) and BPeSA as a pilot project to provide the unemployed youth of South Africa with employment through the BPO industry. The pilot project was a success story,  over 1,000 learners registered.  Due to its success the second phase was launched in July 2010, with 3,400 learners joining. Further phases continue to date. To become a certified employer of cho

ice on the project there are two criteria: Take on a minimum of 60 learners; and offer employment to 70% of them upon their successful completion of the programme. For every six learners employed, one team leader must be trained. So there’s a very specific outcome pursued here.

 

BPS leaders BPeSA,  Western Cape CEO Gareth Pritchard is reported to have said “With South Africa rapidly growing as a BPO provider both locally and abroad, it is imperative that we build our employee base, allowing South Africa to move from a reactive talent development strategy to a proactive one,” In the last decade, SA has built u
p a reputation as a world-class customer service destination that is able to deliver results for a number of the UK’s biggest brands, including ASDA, Virgin Mobile and TalkTalk.

South Africa has also attracted many top international call-centre outsourcers, including Aegis BPO, Fusion, Genpact, Stream, Sykes and Teleperformance, as well as IBM and Deloitte, which provide a variety of services in English, Dutch and Flemish for customers worldwide. Most recently, the Economics spokesman at the SA High Commission in London, Yusuf Timol, forecasted that there would be huge opportunities looming for capturing India-based BPO work in 2012 and beyond.

 

To emphasise whether South Africa has a future in this industry Frost & Sullivan’s business unit leader, ICT Africa, Birgitta Cederstrom says “Africa is increasingly popular as a preferred destination of contact centres; South Africa specifically has been a natural choice for contact centres due to its large and articulate English-speaking population and service-oriented business culture. Another strength is its expanding broadband connectivity, thus ensuring that the latest unified communications and collaboration tools will run efficiently.”

 

During Trade and Industry Minister Rob Davies’s Budget Vote in the National Council of Provinces (NCOP) in Parliament he said “To date, 23 applications for the BPS incentive scheme have been approved, potentially leveraging R4.1 billion worth of investment and 15 149 jobs over three years,”

 

“Close to 3 400 young trainees were trained under the second phase of the Monyetla Work-Readiness Programme, 70 per cent of whom were placed directly into employment.”  said Davies

 

This brings us to ‘where’.  A couple of years ago South Africa’s Call Centre Nucleus group was fully acquired by Aegis, India’s business process outsourcing arm of the diversified Essar group. The company purchased CCN as part of its st
rategy to invest R500 million in the next three years and create 5000 jobs in South Africa. Currently they are situated in two locations: Woodmead and Sunninghill, both in Johannesburg. The total seating capacity of over 1,300 seats.

Inc. (Nasdaq: ININ) is a global provider of contact centre automation, unified communications, and business process automation software and services.  Interactive Intelligence has more than 4,000 customers worldwide. In other words, a major player in the BPS world. Interactive Intelligence is about to occupy one of ATIO’s buildings in down town Johannesburg, which will now function as its regional headquarters serving all of Africa.

 

Amazon, America’s largest online retailer, has expanded its customer service operations into Cape Town, claiming to have created 600 jobs in its first two years of operation and an additional 400 seasonal jobs during holiday season.

 

A R125-million, 1 500-seat call centre integrating, training, office and recreational space has been constructed to enhance the global competitiveness of the Coega Industrial Development Zone outside Port Elizabeth. The Business Process Outsourcing (BPO) Park, covers five hectares and includes training facilities, lounges, a cafeteria and a restaurant, is the first of its kind in South Africa. The BPO Park is situated in Coega’s business service precinct, next to workers’ residential areas, and replaces a 200-seater call centre already in existence.

 

Then came Fusion, another world player in the BPS industry. Fusion Outsourcing’s headquarters, Fusion House at Century City, Cape Town; and the new Gauteng premises in the Johannesburg CBD are modern, state-of-the art contact centre facilities, from where  almost 1500 agents and support staff deliver customer services. In 2011 Fusion won the national industry awards for the 3rd consecutive time for both the Best Offshore BPO Centre of the Year, and the Best Offshore Customer Service Centre of the Year.

 

The market for such centres seems unpredictable. Anticipating the market for contact centres a while back, construction giant Grid, built a luxurious and state of the art built-for-purpose call centre in Mount Edgecombe next door to Umhlanga Rocks.  It’s fully occupied. On the other hand a cursory glance through the free on-line classifieds Gumtree, revealed an advertisement for “Call centre property to let or for sale in Kent Avenue, Randburg. Total GLA 6500m², 350 – 500 work stations, and 185 parking bays. Asking rental R60/m² net or for sale at R49 mil excl VAT if applicable. Available immediately.” So there are some surprises out there from a real estate point of view.

 

Not that long ago A 27,000sqm call centre in the Jo’burg CBD was sold, through a negotiated deal, for R97,5m. The seven-storey facility situated at Laub Street was sold on behalf of a major retailer and was snapped up by City Properties. The property was sold with a ten year triple-nett Edcon lease in place and in effect is a sale and leaseback transaction.

 

So it would be incorrect to say that BPS is not having an effect on property since they are definitely players in the market. But the extent that there is any ripple may call for some speculation.

 

BPS certainly is an industry worth monitoring from a commercial real estate perspective, currently as a growing number of international firms choose to set up shop locally and large numbers of staff will be required in specialised or converted to spec facilities.

Chinese Retail Booms in Durban

Dotted all over Southern Africa the little Chinese spaza-type shop is now part of the landscape. But in the cities many Chinese traders congregate in what is known as China Towns or China Malls. Although not new to South Africa, China Malls are booming in South African cities and are now flooding Durban, for some noteworthy reasons.

The Chinese community in South Africa can trace its origins back to the 1800 when labourers came to work on the mines in Johannesburg. During apartheid days Chinese were referred to as non-whites except for those from Taiwan who were given the dubious classification of ‘honorary whites’. Visas were tight in the pre 1990 days but now we have what’s being called the Shin Qiao (New Chinese) migrating and working here.

Johannesburg has been associated with the South African Chinese community for some time. But recently Cape Town and Durban have seen growth in Chinese traders in their retail districts. In Cape Town a third China Town shopping centre has opened in Voortrekker Road in Parow recently. There are another two in Ottery and Sable Square. This makes up just less that 200 shops with more planned in phase two at Parow.

It is estimated that there are as many as 50 000 ‘new Chinese’ in Durban as well as up and down the coast running shops of various kinds. Two new Chinese owned-and-run malls opened in Durban in 2011: China city in Springfield Park housing 150 shops and the extensive Oriental City Mall in the city on the corner of Anton Lembede and Mahatma Gandhi.

As early as 2010 the old and dilapidated The Wheel shopping Centre was re-opened as a China Mall. What was just a string of Chinese shops has now taken over two floors with every kind of ware available for the bargain hunter. Management is eyeing the third floor now for even more expansion.

Anthony Lee, manager at China City, quoted in Business in Durban Magazine Autumn 2012, says the port is a big draw. “Goods arrive here in Durban. They used to go to Johannesburg. More and more Durban is being seen as the place to do global business. “

Yinbiao Hao, spokesman for Durban’s Chinese Consular General, quoted in Business in Durban, said “Security is better. (In Durban) The police service is better. There is less bribery here.” Hao says awareness of Durban’s better governance has made the city a viable business option among Chinese businessmen.

Those in the office of Durban’s Chinese Consular General’s office believe events like the 2010 world cup and Cop17 have put Durban tourism and business on the map of Chinese commerce. Many Chinese hadn’t heard of Durban before these events and now marvel at the city’s reputation among the Chinese community in South Africa for its good governance.

Chinese Journalists covering Cop17 developed the motto: “Durban the perfect city for people to live and stay.” Now that’s publicity that’s hard to buy!

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