African Growth: Who’s Investing, at What Price?

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 farther between.

Sub-Saharan Africa’s attractiveness as an investment destination has risen to fifth place 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 15 years ago. It paid $285 million for a mobile license,  as of 30 June 2016, MTN recorded 232,6 million subscribers across its operations. Although MTN operates in over 20 countries, one-third of its revenues come from Nigeria, where it holds about 35% market share.

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 back 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 (now Anheuser-Busch InBev) head for the region, Mark Bowman. “No one is getting anything for a reasonable price anymore; 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 a few years back, 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 FirstRand dropped its bid for Nigeria’s Sterling Bank 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 sidelines 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 into 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.

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What every Potential Home Buyer should ask an Agent

So you’ve made your calculations with your home loan calculator and you’re out there viewing houses and getting all excited about what you see. At some point you’re going to have opportunity to talk about the house you’re interested in with the agent. If you’re anything like me you sit staring at the agent with mouth open like a guppy and your best questions dribbles down your chin as they gush madly about the house in question. Then you drive home confidently reciting some the most incisive questions know to man. Perhaps you should come prepared.

 Don’t be afraid to ask questions, you’ve gone to the trouble of using your home loan repayment calculator, don’t hold back with your research now. Whether you are looking to rent or buy you will be parting with a significant sum of money and you are well within your rights to have any of your questions answered.

Here are some important questions you should ask the agent before you sign on the dotted line. They are not necessarily in any particular order.

What are the rates? 
This will help you calculate your budget should you want to look at making an offer for the property.

Is there a levy? 
This is a particularly important question to ask if you are looking at a flat within a residential block or a unit in a sectional title complex.

How long has the property been available?
The longer the property has been on the market the more likely that it is overpriced or has some other problem. Having this information empowers you when it comes to negotiating a price – for example, if it’s been on the market for a while, the vendor or landlord is likely to be keen to come to a deal and so may settle for less than the asking price.

Why is the property available?
Hopefully the answer will be something that is not related to the standard of the property. For instance, if the current residents are looking to move because they have out grown their home or need to relocate then consider if you would be in the same position if you moved in.

How long did you/the previous owners/tenants live here?
The longer the better. If there have been many different residents in a short period of time, why did they not stay longer?

Has there been any recent improvement work on the property? 
Recent work can be viewed both as positive and negative. If the house has just had new windows or guttering that may be a plus. However, if it has been underpinned to prevent subsidence this may prove to be a significant negative.

Is there a neighbourhood watch?
While the answer won’t necessarily tell you how safe the neighbourhood is, you should get a good idea if neighbours look out for each other if there is an active scheme in place.

What are the neighbours like?
Although you are unlikely to be told directly that you are set to move next to neighbours from hell, the reaction you get from the landlord or homeowner should give you some idea what the local residents are like. Does she run a trombone recital club or a day care? Does he service cars or use loud power tools all day?

How many viewings have they had?
More viewings indicate a greater interest in the property, however, if none of the viewings have resulted in an offer does this show that it is too expensive or has another issue. Again, getting this information also gives you more ammunition for price negotiations.

What is the local traffic like?
This is especially important to ask if you have to commute to work by car. Again it’s unlikely that they will complain about heavy traffic but you may pick up some clues in the answer as to whether there is a problem.

When is the noisiest time of the day?
Any mention of aircraft or traffic noise? Is the house on a minibus taxi route or near a taxi rank? What about proximity of shops, clubs and restaurants that may have high noise volumes at certain times of day.

How old is the roof? 
Firstly, are there leaks and where? Roofs only last for a limited time so it’s worth checking just how old the current one is. The older the roof the more likely it will need work, which may be quite costly.

When was the last time the geyser needed repairs or has been replaced? 
Geysers sometimes malfunction due to electrical faults or water pressure issues. Is the current geyser under guarantee?

Has the property ever been burgled?
Unfortunately if a property has been burgled in the past it can often be revisited again. If they have been burgled on more than one occasion then it’s even more likely that it will reoccur. It’s also a good idea to ask what security measures the property is fitted with – for instance an alarm.

Are there any issues that I need to know about?
Certain problems, such as if a property has been underpinned for subsidence, must be legally declared, however asking this question should ensure you know if there is anything else that you’re not being told. Ask about rising damp and faulty drains.

How old is the septic tank?
Not all South African towns have waterborne sewerage. Septic tanks have a life span and they often need draining. They are also attacked by nearby roots. Ask to see where the tank is in the garden and look how closely trees are planted.

How far is the property from local amenities? 
Can you easily walk or drive to everything you need without a problem?

This list is by no mean exhaustive but they all make up a body of research that you began when using your bond calculator. Keep in mind that agents are paid to put the best face on a property not to be dishonest. Most agents may be honest about most things but they are unlikely to volunteer information that will paint the house in a bad light. So take your list of questions with you and write down the answers as you hear them. Happy house hunting.

Doing your part to ensure bond approval.

{Financial institutions are tightening their grip on approval criteria for home loan seekers. What can you do once you’ve used your bond calculator to improve your chances.}

 The amount of accepted applications have fallen lately as a result of tighter lending regulations. These oblige providers to make far more stringent checks that you’ll be able to afford to pay your bond, even if interest rates go up or your circumstances change.

While there’s no way of absolutely guaranteeing your bond application will be approved, there’s plenty you can do to make sure your chances are as high as possible.

The following are some helpful suggestions that should assist you in your home loan seeking endeavours. Remember that a good start in this process is to find out where you stand with the aid of a home loan calculator.

In no particular order of importance…

1. Grow that nest-egg

Saving a large deposit reduces the lender’s risk if they offer you a bond, as they’ll be providing a loan for a smaller portion of your house’s cost. It also shows that you have the financial discipline required to pay a bond. Remember that when you use your bond repayment calculator, one of the entries is the deposit; you will notice what a difference a large deposit makes to the final monthly repayment. Applying with a higher deposit will improve your chances of being accepted.

2. Shrink some debt

Lenders can be negatively swayed if you have many debts on top of your bond, like outstanding credit card bills, overdrafts or loans. The more you can pay off before you apply, the better your chances.

That doesn’t mean you should use most of the deposit you’ve saved to pay off debts. Focus on paying off the expensive ones, preferably using money you’ve saved by cutting down your spending on luxuries.

3. Get your credit record in order

Check your credit record through credit bureaus like Transunion, Credit4life or Compuscan. (There are many more.) These can reveal any potential problems like unpaid loans or bills that warn off lenders.

It also gives you the opportunity to check there’s nothing incorrect on your credit report that would harm your bond application – if you find anything wrong, you can ask for it to be removed.

You’ll then be able to work on making yourself look more attractive to lenders. Avoid applying for many financial products just before you take out your bond, although sensible spending like paying off a credit card in full each month can look good.

4. Declare all income

When your lender or broker asks about your income, don’t just give your basic salary. Include details of bonuses, commission and any other income like investments, shares, expected inheritances and even potential pension payouts.

Make sure the information you give is accurate, make sure you include all your income. Try to time your application sensibly  – you’re far more likely to be accepted if you have a permanent contract than if you’re still in a probation period of a job you’ve just started.

5. Reduce your bill load

Having bills you pay out for every month will reduce the total amount of your wages available towards paying your bond.

Divide your monthly expenditure into essentials such as food, travel costs, bills and child maintenance, luxuries such as gym membership, holidays and entertainment. If you can cut down on the latter, you’ll improve your chances of being accepted.

In the event of failure…

When you’re looking for any kind of loan, avoid appearing too desperate. Don’t apply for dozens of bonds in the hope that one might say yes, as every lender will leave a mark on your credit report when they check it.

Instead you should look into why you’ve been turned down. The lenders all have different criteria, so just because one rejects your application  doesn’t mean that all of them would. Your calculations with your bond calculator are still valid.

Ask the bond provider if they can offer any feedback. You can also check your own credit report to look for any potential problems or speak to Bond Brokers like Bond Buster, SA Home Loans or IHBB who may have a clearer idea of why the lender rejected your application.

A Glossary of Terms for the Homebuyer

When considering a mortgage bond from a bank to buy your dream house you may find yourself bogged down in a swamp of legal terms and bureaucratic mumbo jumbo. Not everything is as straight forward as your bond calculator.

Affordability Score

The Bank’s assessment of a Buyer’s ability to afford monthly instalments based on their income.

Agent’s Commission

The amount payable by the Seller to the agent for work done on marketing and selling a property. This is a percentage of the selling price.

Asking Price

The price at which the Seller is offering their property for sale.

Beetle Certificate

A certificate issued confirming that a structure is free of wood borer or termite infestation. This is a legal requirement when selling.

Bond

A lending agreement between a Buyer and the Bank. The legal bond document states that the Bank will lend an amount of money in the form of a bond.

Bond Calculator

Online software used to calculate estimated repayments on a bond. Input data is required, for example the desired monthly price. The sales price is then automatically adjusted enabling the user to appraise his/her position in the market place.

Bond Cancellation Cost

Costs accrued during the cancellation of a bond. These include an Attorney’s registration fee and a Deeds Office fee.

Cancellation Attorney

The Attorney who attends to the cancellation of the Seller’s bond and is appointed by the Bank with whom the current mortgage bond is held.

Conveyance Tax

A tax charged for the transfer of property from the Seller to the Buyer.

Conveyancer

A Conveyancing Attorney will attend to Deed Office transactions such as the transfer of a property from a Seller to a Buyer.

Cooling Off Period

The 5-day period after the Offer to Purchase has been signed during which the Buyer of a property has the right to cancel this agreement.

Credit Report

A detailed score card of an individual’s credit history prepared by an official credit bureau. This report will determine your risk as a borrower.

Debt-to-Income Ratio

A ratio which shows a Buyer’s monthly payment obligation to debts and which is divided by gross monthly income to ensure affordability.

Estate Agent

The Estate Agent is a person who is authorised to act as an agent for the sale of land or the valuation, management, or lease of property.

FICA

The Financial Intelligence Centre Act, 2001 was formed to regulate money laundering and requires valid information to be presented to the Bank.

Home Loan

An agreement between the Buyer and a Bank, where the Bank lends the Buyer money in order to purchase property.

Home owners Insurance

An insurance policy that covers your house (structure and property) in the event of damage or loss.

Instalment Amount

The monthly amount paid to the lender as part of the total home loan amount. Instalments run for the entire duration of the agreed term.

Interest Rate

A percentage interest is added onto the amount of money borrowed from a Bank. This amount is fixed for a period and is based on the amount of money borrowed.

Mortgage Broker

Someone who acts as an intermediary between the Buyer and a Bank, for the purposes of arranging a home loan.

Municipal Rates

Taxes paid to the municipality by property owners.

Net Income

This is your yearly income after taxes.

Occupational Rent

A charge applied to the Seller for occupying the property after registration has taken place or to the Buyer for occupying the property before the registration has taken place.

Offer to Purchase

A legally binding document signed by the Buyer and Seller stating the agreement of the sale and its conditions.

Payslip

A document issued on a monthly basis by your employer as proof of your monthly income.

Property Transfer

When ownership of a property legally changes hands from Seller to Buyer, through registration of the property at the Deeds Office.

Purchase Price

The amount paid for the purchase of a property as set out in the Offer to Purchase agreement. This can be worked out retroactively by using a bond calculator.

Qualified Buyer

Someone who meets a Bank’s requirements of affordability and has qualified for a home loan.

Registering Attorney

The Attorney who attends to the registration of the new bond into the name of the Buyer.

Repayment Term

The number of months allocated to pay off a home loan. The maximum repayment term is 30 years. This can be easily calculated with a bond calculator.

Sectional Title

An entire property of flats or townhouses. The property is divided into individual units and sold separately and runs under a Body Corporate.

Subject to Sale

When a sale of a house becomes binding and unconditional then certain conditions are met, such as bond approval.

Title Deed

The legal document which states ownership of a property. The Title Deed is filed at the Deeds Office and contains details of the property.

Utilities

Services provided by the government for your use at home. Utilities include: water, electricity, telephone service and other essentials.

Voetstoots

Refers to a property sold “as is”. After a sale of property, a Seller is not liable for defects following a reasonable inspection of the property.

Print this list out and keep it handy when those terms start flying around that you’re not too familiar with. Remember to refer to your bond calculator as the figures start coming at you. With both your bond calculator and your glossary of terms you’re all set to go house hunting.

Bond Affordabilty and the Hoops Banks make us jump through

Your Bond Affordability ‘Score’

Is there such a thing? With research it seems that between the banks the variables are many and the absolutes are few. After working out what you can afford with your bond calculator one will have to take your chances depending very much on the bank.

ABSA Home loans singled out ‘Affordability’ as having become a key factor in the South African housing market recently. You may know what you can afford having used a bond calculator to work out what asking price you can afford but the banks have varying, between banks, criteria on which to base its decision to grant you a bond.

Affordability is a key factor in the South African housing market and banks’ lending criteria has tightened up, but in some instances applicants are reportedly still able to qualify for 100 per cent loans.

ABSA has been quoted in a previous review that the focus of demand for supply of housing is set to be on smaller-sized and higher density housing because affordability is set to remain a key factor into the future.

ABSA also said it still lends up to 100 per cent home loans to would-be home buyers even in this buyers’ market but only if they qualify.

In line with the National Credit Act, the bank’s lending criterion is informed by the customer’s affordability and credit worthiness and taking into consideration some factors as discussed below.

Bond Assessment Criteria

When a local property website asked the four major banks what the criteria are for assessing a home loan application the summarised replies were:

Standard Bank: a loan–to-value criterion plays a major role in what the customer can qualify for; documents required depend on whether the applicant is employed or self-employed, has a Standard Bank transactional relationship or not and if they earn a fixed or variable income.

Generally, document requirements are less onerous for customers that have a transaction account i.e. Employed SBSA applicant with fixed income would need to provide the latest payslip and an offer to purchase.

A non Standard Bank customer with fixed income would need to provide the latest payslip together with the latest three months consecutive bank statement reflecting three months’ salary deposits.

Nedbank:  minimum income (single or joint gross monthly income) + R2500- minimum loan amount R100 000. A maximum repayment term of 25 years. An acceptable credit record. Payment by debit order. The property must be in good condition and acceptable to the bank

FNB:  latest copy of applicant’s payslip. A bank statement. Self-employed applicants will need to supply a signed personal statement of assets and liabilities as well as a balance sheet and financial statement for the business from which income is derived. A commission earner will be required to submit the last six months commission earnings statement.

ABSA:  Current debt repayment behaviour; credit history; affordability; net disposable income; household finances; residential property cycle and prospects; prevailing economic cycle; consumer risk profile.

Preapproval of Bonds

When asked if the bank would give pre-approval of a bond with no upfront fees: this could be worked out and adjusted using a bond calculator.

Standard Bank: A customer can apply for a pledge via the internet or through the Standard Bank Call Centre. No fees are charged for pre-approvals.

Nedbank: Does not grant pre-approvals. Customers can read through the information on the bank’s website to determine what they can afford through various calculations and thereafter use a bond calculator.

FNB: It is called a “Passport to Purchase” where no upfront fees are levied and this pre-qualification is valid for 90 days.

ABSA: According to the National Credit Act, financial services providers are prohibited from granting pre-approved finance to customers.

Sceptics may reflect that this is hardly a scientific process but at the end of the day banks are conservative for a reason. What’s best, is to ensure you have jumped through all the necessary bureaucratic hoops with the bank of your choice and ensure you are taking advantage of a bond calculator to keep the correct figures at hand.

 

 

Ten practices of picky property purchasers

So you want to buy a house. House hunting is all about the viewing. Here’s how to make sure a property is really worth your money.

Upon determining your bond repayments with your bond calculator it’s time to start looking around. Looking around a property that could become your new home is exciting, but you can’t afford to get swept up in fantasy, sales pitch and the pressure to purchase…

Failure to use the viewing time effectively and you could miss something that ends up costing you dearly.

Here are ten tips that will help you see what’s really up for sale behind the agent’s sales talk.

1 View during the day

Make sure to view the property at least once in daylight so that you can see it with clarity. If your first viewing was unavoidably at night, push for another viewing in daylight before making an offer. Similarly if you have viewed the property during the day and want a better idea of what the area is like in the evening, you could arrange a second viewing later in the day.

This will give you an idea of how light the property is at different times of the day, how loud the neighbours are and what the neighbourhood is like once evening sets in.

2 View with company

The more pairs of eyes you have looking around a property the better.

If you attend a viewing alone then it’s likely you will be lead around by an agent who do their best to highlight the positive features of the property, not giving you the chance to look closely.

So even if you will be living alone, take a friend or relative to view the property with you as they may spot something you miss.

3 Examine the exterior.

It is easy to get caught up examining the inside of a property and forget to take a thorough look at the outside.

Checking the exterior and the roof as well as the pipes and drainage is essential; if there are any problems they could be expensive to fix.

If any work needs doing you may either want to arrange a professional survey if you are looking to buy, or look for a rental property elsewhere.

4 Take your time

The last thing you want is to have to rush around the property because you have another appointment or viewing booked.

You should leave at least 20-30 minutes to view the inside of a property and a further 20-30 minutes to check the outside and the local neighbourhood.

If you are being shown around by an agent or the owner, try and view the property at your own pace and avoid being rushed through.

 

5 Consider room and space

An empty flat or house will always look bigger than a fully furnished property, so you need to check that there really is enough room.

Check what the property offers in terms of storage space. For instance, are there built in wardrobes in the bedrooms, or would you need to have space for a wardrobe in each room?

Would your bed, couch, dining table and drawers all fit comfortably or would you be blocking plugs and windows and so on?

In the kitchen, are the white goods built in or would you need to use vital space for a fridge, washing machine or dishwasher? What about the cupboard space, is it expansive enough to fit all of your pots, pans and crockery?

6 Arrange many viewings

Making sure you go back to view a property after the first look can help make sure that you don’t miss any potential issues and ensures that your know exactly what you’re getting for your money.

It also gives you the chance to ask the agent or owner any specific questions that you have after looking around the first time and to negotiate on price if needs be.

7 Take pictures

Taking lots of photos, or even a video, is a great way of ensuring that should you miss something you then have a personal record of the viewing to look back at.

It also means that you can look back at the property and compare it to others you’ve seen in your own time without the pressure of going around with a letting or estate agent.

However, make sure to ask permission before you start snapping away. Although letting agents and estate agents will not usually have an issue with you taking photos, if the owner still lives in the property it is only polite to check.

8 Watch out for damp

Damp can be serious concern regardless of whether you are looking to buy or rent a property, simply because it may illustrate more fundamental problems.

Signs of damp include a musty smell, peeling wallpaper or bubbling paint and mould or dark residue on the walls and ceiling.

If you suspect that the property suffers from damp it need not be a deal breaker but should definitely be an issue you raise with the agent and investigate further.

Any cracks or signs of subsidence may indicate a much more serious problem with the property so make sure you look out for these too.

 

9 Examine everything

When you are looking around a flat or house, don’t be afraid to test the fittings and fixtures.

Check that the windows open easily and that there is suitable water pressure throughout the property by testing the showers and taps. You are also within your rights to check things like the level of loft insulation, the wiring and electrics during a viewing and it’s a good idea to do so.

Although you may feel awkward testing things in this way, any issues you spot at viewing can either be fixed before you move in or be used to negotiate a reduction in price.

10 Ask the hard questions

Don’t be afraid to ask questions, whether you are looking to rent or buy, you will be parting with a significant sum of money and you are well within your rights to have any of your questions answered. For example ask about rates, previous renovations, traffic, neighbours, burglaries, state of roof, proximity of schools, state of geyser, the reason why the property is on the market, were there tenants before and so on.

Negotiating a Better Price for Your New Home

Here are four important considerations when negotiating the asking price of your prospective home so you can bring down the monthly repayments you calculated with your bond calculator.

Probably the biggest purchase you’re likely to make is a house. So bringing down the asking price even a couple of per cent will save you thousands of Rands.

Here are our 4 easy methods of negotiating down the price of the property you have your eye on.

1. Start low

It may be that you have to put in an offer on the property before you get any reaction from the seller.

If this is the case put in an offer below what you worked out using your bond calculator, this will then allow you to up your offer at a later date which will then seem more attractive to the seller.

It’s also wise to explain your offer; state exactly what work the house needs and how much it will cost, or that other properties of a higher standard went for less than the listed price nearby.

Explaining your offer in this way not only makes the seller think twice about their valuation but also makes you appear serious about purchasing the property by showing that you haven’t simply plucked a number out of mid air.

2.View thoroughly

In reality you can often tell quite quickly if you like a property or whether you don’t ever want to set foot in the house again. However, if you are interested you shouldn’t get swept away with the excitement of finding somewhere you’d want to live.

Any flaws or work that need doing represent an opportunity to knock some money off your offer price. So taking the time to thoroughly inspect the property, inside and out, could give you the ammunition you need to negotiate.

Estimate the cost of any work required and take this amount off your offer price – you’ll be justified in doing so.

You should also find out whether there are likely to be any major expenses in the near future – ask when the geyser was last serviced and when the roof was last repaired (or resurfaced if it’s flat). Again, if work is likely to be needed in the near future you have a legitimate reason to go in with a lower price.

You should also consider whether parts of the property need redecorating and how much this might cost and factor this into your negotiations.

3. Ask for extras

If the person selling the house isn’t willing to budge on price then you may want to negotiate over the additional costs you face when buying.

It’s estimated that the cost of actually purchasing a house can easily exceed £5,000 when you consider legal fees, valuations fees and surveys.

Asking that the seller contribute towards these fees could be a good way to cut the cost of purchasing the property and save hundreds or possibly thousands of Rands – even if you don’t manage a reduction in that actual house price.

4. Do your research

You’ve already done some research by using your bond calculator, now consider researching the  ‘going rate’ for other properties in the same area.

If you can argue that the asking price is above what similar properties sold for nearby, you will have a strong case for a reduction in price.

You should also check the asking price of other properties currently on the market and see what they offer in terms of space, features and presentation.

• If other properties are of a similar standard but the asking price is higher, then the owners of the property you’re looking at could be struggling, or in a hurry to sell – both of which could work in your favour when negotiating over the price.
• If other properties are of a higher standard but going for an equal or lower price you need to question whether they’d be a better investment than the one you’re currently looking at.
• If other properties are of a similar standard but are on the market for less than the property you want to buy, you can use this to your negotiating advantage.

If you think the property is overpriced mention it to the estate agent – they may feed this back to the owners who could drop the price of their own accord.

Ask the agent how many viewings the property has had and whether it’s received any previous offers. If there hasn’t been a great deal of interest, it gives you licence to go in with a lower bid when you start negotiating.

If you discover that the property has had lots of viewings but no offers then quiz the estate agent about why they think this is the case and use this knowledge to your advantage.

You could also ask for certain things, such as curtains and appliances to be left by the current owners to reduce your set up costs even further.

After you’ve gone to the trouble of using a bond calculator to work out your monthly repayments that price you can afford, then you’ve shown intent and are ready to negotiate. Be strong and don’t back down – remember you’re the customer and you hold most of the cards. Don’t be afraid to consider the points above when proceeding with your house purchase enquiries.

BOND PROTECTION INSURANCE

So you’ve decided to work out the details of your bond repayments with our bond calculator. But now you need to start thinking about, what they call in the industry, Bond Protection Insurance.

Bond Protection Insurance is a bond insurance plan that has been specifically designed to provide flexible risk benefits in respect of home loan protection.

The plan pays the original bond in the event of Death, Dread Disease or Permanent Disability, and pays the monthly bond instalments in the event of illness, injury, temporary disability and retrenchment. Under most plans the bond holder has the flexibility to select any combination of the benefits, in addition to the death benefit.

Most insurers these days offer choices, making the cover more accessible, highlighting the convenience and expertise they offer. Getting insured should be a straight forward process ensuring that your particular financial needs are adequately met and that your most important asset is protected for Life.

This is all very well but what about the details. Once you’ve used your bond calculator and you have some idea of the kind of house you’re in the market for and what the repayments you’ll be  faced with, bond protection insurance is like another hill before the end of the marathon. So let’s look at what insurers are offering.

What are the benefits?

Firstly there is the direct payment of benefits into your home loan. Next there is the death benefit (which typically pays a lump sum directly to the home loan within 48 hours of receiving all the documentation on a valid claim). There is also an instalment protection benefit which covers the bond instalment in the event of illness, injury, temporary and permanent disability.

There is usually a permanent disability benefit which pays a lump sum directly to the home loan in the event of a valid disability claim as well as a dread disease benefit which pays a lump sum directly to the home loan in the event of a valid dread disease claim allowing you to focus on getting better. A retrenchment benefit is offered which covers the bond instalment for up to 6 months while you focus on finding new employment.

Very rarely are there medicals or HIV test. Two lives may be insured under one policy, thereby providing a more affordable premium. The policy can be ceded to any financial institution. The policy will pay the full death benefit on death even if the instalment protector benefit has been claimed. While a valid Instalment protection benefit is being claimed, all the policy premiums due during that period do not have to be paid. You should be able to increase or decrease your cover to suit your home loan requirements.

Free death cover is offered, usually around three months,  while the bond registration is pending. Cover is provided for the term of your home loan.

Typical Features of the Products

Instalment Protector Benefit

If you as a homeowner are prevented, as a result of illness or bodily injury, from earning an income for a period of usually 90 days or more, your bond protection plan Insurance will pay the monthly home loan instalments while you are unable to work. These would be the same instalments you that can be worked out with a bond calculator.

Dread Disease benefit

Most Bond protection policies include what’s called a Dread Disease Benefit. A list of diseases would be included with the policy. If you are diagnosed with any disease on that list you will be paid the sum assured, usually after a period of 90 days, allowing you to concentrate on recovery. If the sum assured is greater than the outstanding home loan balance, the difference will also be paid into the home loan account.

The following 12 Dread Diseases are more often than not covered by most insurance companies:

Blindness, Cancer, Coma, Coronary Artery Bypass Graft, Heart Attack, Heart Valve Surgery, Loss of Limb, Major Burns, Major Organ Transplant, Paralysis, Renal Failure, Stroke.

Retrenchment Benefit

If a homeowner is retrenched for a period longer than 30 days, Bond Protection Insurance will, if this benefit is included, pay the home loan instalments for up to 6 months, allowing the homeowner the peace of mind to find alternative employment.

Lump Sum Disability Benefit

Almost all bond protection insurance covers homeowners who are totally and or permanently disabled rendering them incapable of earning income for a period of 90 days or more. Bond Protection Insurance will pay the home loan instalments for the first 24 months, before paying the lump sum benefit equal to the sum assured into the home loan account. If the Sum Assured is greater than the outstanding home loan balance, the difference will be paid into the home loan account.

Death Benefit

In the event of death all Bond Protection Insurance schemes pay a benefit equal to the sum assured. Again, if the Sum Assured is greater than the outstanding home loan balance, the difference will also be paid into the home loan account.

Now that you’ve seen all the benefits of Bond Protection Insurance you can soberly consider the value in pursuing this next stage in your journey to purchase your own home.

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

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, 4% last year. According to the World Bank many African economies are among the world’s fastest growing in 2015. African countries in the top 20 last year with the highest projected compounded annual growth rate (CAGR) from 2013 through 2015, based on the World Bank’s estimates are: Zambia 7.2%, Tanzania 7.4%, Uganda 3.4%, Sierra Leone 9.5%, DRC 7.9%, Ghana 8.1%, Mozambique 8.7%, Angola 8%, Rwanda 7.8%, Gambia 7.8% and Ethiopia 7.9%.

US-based business consulting company Ernst & Young reports: “There is a story emerging out of Africa: a story of growth, progress, potential and profitability.”  Back in 2013 US secretary of state for African affairs, Johnnie Carson is quoted as saying that Africa represents the next global economic growth since 2000, U.S. trade relations with Africa have been dictated by the Africa Growth and Opportunity Act (AGOA). As a unilateral preference scheme of the U.S. to promote trade and investment in Africa, AGOA was meant to boost U.S. trade with Africa and the development of the continent. However, 14 years in, U.S. trade in goods with Africa has demonstrated a perplexing downward trend since 2011. U.S.-Africa trade dwindled from $125 billion in 2011 to $99 billion in 2012 and $85 billion in 2013. For the first five months of 2014, U.S.-Africa trade in goods totalled about $31 billion. At this rate, the total trade volume in 2014 could be well below $80 billion in a continuation of the declining trend. This is largely blamed on an decline in demand for oil from Africa and the fall-out from the 2008 financial crisis

In comparison, Beijing has been quite low-key in disseminating its Africa trade promotion efforts, although its trade with Africa has been growing exponentially. China surpassed the U.S. as Africa’s largest trading partner in 2009. China-Africa trade reached $166 billion in 2011, an 83 percent rise from 2009. The bilateral trade further increased another 19.3 percent to $198 billion in 2012, and passed the $200 billion threshold to $210 billion in 2013. In terms of trade volume, Chinese trade with Africa not only dwarfs U.S. trade with Africa, but the gap is as large as 2.5 times the magnitude of last year. But there’s some dissonance between the rhetoric and action.   {THE HILL}

London based magazine The Economist reported: “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 and 13% in 2013. Although according to E&Y FDI projects (as opposed to cash) declined by 3% in 2013

Despite projections for growth in 2015 being revised downward due to the so called Arab Spring, lack of demand for oil and a sluggish world economy , 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 4.5%. 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. Having said this attacks by Boko Haram in Nigeria and Al Shabab in Somalia and Kenya go against this trend and have worrying consequences if not contained. Also in this category would be the so-called  Xenophobic violence in South Africa.

All this growth and urbanisation is putting a strain on social services in 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 the end of 2015.

Some other 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 has been and may continue to suffer as fewer Europeans come to Africa, affecting 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 and hasn’t recovered much since. 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.

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 was still growing well compared to the advanced economies, it’s certainly hasn’t kept up with some of the other rapid-growth markets.” Says Lalor. Now it’s battling to grow at all.

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.

For more articles by Matthew Campaigne-Scott CLICK HERE

Offshore Property Investment – Not for the Faint-hearted.

Timing is everything, and if it isn’t then learning from history is. Continuing to make the same offshore property investment bungles could be the result of a combination of emotional frustration, Afro-pessimism and a Moby Dick like obsession with the Rand.

In 1997 the South African government allowed its citizens to take R200 000 per capita per annum to invest offshore. One may argue that investors practically ran to the offshore hills from an outperformed JSE and evaporating Rand.  South African investors stood clutching their modest handful of Rands and looked up in wonder at a booming Wall Street. By 2001 the rand had fallen to R13.50 to the Dollar.

Who would believe that ten years later many countries would be on the verge of bankruptcy and that people would be grumbling about the “Strong Rand” and that the South African Equity market had outperformed most other markets over the same period?

But those in this game for the long haul will remind us that when all seems lost, it’s time to role up the  sleeves and capitalise. Back in 2001 when fear gripped investors it was actually the right time to buy into SA equities. When the rand collapsed and afropessimism crept in, investors bought Dollars and Euros expensively and sold out of arguably undervalued markets and bought into markets trading at large premiums.

Looking back over ten years, comparisons have been made to a R100 investment in the JSE all-share index at the end of 2001 that would have been worth about R400 by the end of June this year, versus only around R94 if invested in the MSCI world index over the same period. The main US equity index, the S&P500, is today still roughly 10% below its peak in 2000 in rand terms.  Emotions have been the main driver of the investments.

Says Investec Asset Management director Jeremy Gardiner  to the Financial Mail August 2011, Many SA investors, having watched with horror over the past 10 years as the rand doubled in value and the JSE delivered enormous returns, are again considering switching at the wrong time — this time out of developed markets and into SA equities and the rand. “Yet again, this decision is made on the basis of emotional frustration rather than recognising that both SA equities and the rand are now relatively overvalued.”

But a steady hand is required here since the strong performance of the SA equity market seems set to continue.  Offshore investment in general equities may well have dried up recently, it seems the JSE’s R125bn listed property sector is becoming a hot commodity among overseas investors. Big institutions putting down their names include Principle Global Investors, Black Rock and State Street.

On the receiving end GrowthPoint properties, has seen its overseas shareholding jump from 3% to 11% a while back. Redefine – SA’s second-biggest listed property counter, with a market cap of R20.3bn – doubled its offshore shareholding from 4% to 8% in the same period. “Global investors are now taking note of the fact South African-listed property offers far more attractive returns – total returns of close to 30% last year – than other global real estate markets.” Says Growthpoint executive director Estienne de Klerk.

There is expectation of more overseas funds showing up locally over the next 12 months. Names bandied about include Hyprop Investments,  as well as what we’ve see materialise from the merger between Capital Property Fund and Pangbourne Properties, also whatever surfaces from the potential merger between Acucap Properties  and Sycom Property Fund and then there’s the  listing of Old Mutual’s R12bn property portfolio.

Macquarie First South Securities property analyst Leon Allison spoke to Finance Week recently and said that although returns over the next decade will be more subdued than has been the case over the past 10 years, current positive structural changes will make the sector more investor-friendly.

Bringing us back to offshore options. The rand’s ‘strength’ favours taking money offshore. But the logic for offshore investment goes beyond any potential weakening of the rand. There is much to be said for the need for South Africans to diversify their assets. But there are more South Africans who have in the past got their offshore investment timing wrong. 2001 was the prime example, when a historic devaluing of the rand alarmed investors into the arms of foreign markets. At the peak of the rush, the second quarter 2001, 88% of net unit trust inflows went into offshore funds.

Now according to Marius Fenwick, head of the financial services arm of accountants Mazars:  “Now is the opportune time to invest offshore as the strength of the rand makes offshore investment attractive. Instead, offshore diversification should be used to hedge future rand depreciation and diversify through access to large global companies.” So here we go again…

But we know already this isn’t all about the rand. The great Bismark said: “Some people learn from their mistakes, that’s good. But isn’t it better to learn from other people’s mistakes?” Aren’t the underperforming overseas markets just waiting for South African investors? Rand or no Rand variance?

What are the options? Who are the players in offshore property investment?

First of all there’s Growthpoint that bought up a Sydney listed subsidiary applying its winning formula in Australia. Then there’s Emira, which has just put R117m into Growthpoint Australia, in their case they claim the rand had zero to do with their investment move. Emira has a 6.4% stake in Growthpoint’s Australian presence.

International Property Solutions markets UK and Australian residential property to South African investors. CEO Scott Picken was quoted as saying that South Africans wait until the rand is collapsing, panic and throw their money into offshore apartments as it hits bottom, he says. “Most investors have lost money offshore in this decade.”

Financial correspondent Scott Picken writes that comparative data shows that South Africans would have made much more money over 10 years measured in sterling by buying an average house in Johannesburg in 1997 than buying one in London at the same time. Only time will tell if the shoe is now on the other foot.

Other off shore institutional investors include Capital Shopping Centres. British Capital, run through Barnard Jacobs Mellet and Stanlib which has offshore unit trusts. Investec Property Investments has unlisted funds buying property in Europe and the US. There is also Catalyst which has an unlisted fund of global listed property funds.  Redefine is working through its London-listed Redefine International. Resilient has New Europe Property Investments (Nepi), which mainly owns shopping centres in Romania. All top performers.

Other choices in property include these very few funds which have actually lost money. Nedgroup Global Cautious (down 8,5%); Sanlam Investment Management Global Best Ideas (down 2,3%) a long term performer though; the Absa International fund of funds (down 15,8%)

Whether it’s  a strong Rand or the need to diversify one’s portfolio, these may be the times that offshore property funds offer the South African investor a long term strategy again, last made available ten years ago. Whatever the case this isn’t the time to think with the knee-jerk of emotion or a political bias.

Landlords Are Back With a Vengence

If anyone thought bricks & mortar retailers were going to lie down in the face of an online invasion they are very much mistaken. Likewise any retail landlord who hasn’t heeded the ‘adapt-or-die’ writing on the wall, is in for a shock.

South Africa’s traditionally big names have learnt to have an online presence to supplement their physical shop experience. Woolworths and Pick n’ Pay have online shops. While Look n’ Listen, for example, has become so integrated online it’s basically a hybrid retailer. Kalahari and Spree remain purely online vendors.

The next phase of integration is being previewed in places like the UK, from whom SA retailers can learn a great deal in this regard.  Enter the “Student Lock in”: some of the UK’s largest shopping centres are using this marketing tool to draw in younger clientele,

After weeks of promotion on social media sites such as Facebook and Twitter, shopping centres close at the normal time, and then reopen from 9pm until 11pm for the ‘Student Lock-in’, only admitting shoppers who can show a valid National Union of Students (NUS) card.  The events are intermittent and planned long in advance.  Special offers, entertainment, food and music all add to a festival atmosphere. One of the UK’s largest shopping centre owners is  Land Securities(LS). Events like ‘Student Lock-ins’ at LS shopping centres in Cardiff and Dundee have raked in the sales.

Other Student lock-in events revolve around online media promotions of film events. For example Gok Wan’s “How to look Good Naked” was promoted on line and shot at the Hammerson mall, packing in the crowds with retail benefits all round. Combining online promotion and social media with fashion, restaurants and leisure seems to be a way of keeping up with the attraction of online stores. People come to shopping centres for the vibe, to eat and be entertained.

But there’s more: in the US, Land Securities has brought the convenience of online shopping into seven of its malls, where Amazon.com collection lockers have been installed. Customers who cannot be at home, or are ordering things too bulky to fit through a letter box, are sent a code and date to pick up their parcel from the shopping centre. When customers collect in store, or return an item it’s another sales opportunity.

A MasterCard survey indicated that the number of people who make use of mobile phone access and thus using their phones to do online shopping in South Africa has increased hand over fist. Growth of mobile smart phones and iPads allows shoppers to shop anytime or anywhere. This can’t be ignored, so if-you-can’t-beat-‘em-join-‘em. Enter the QR Code.

A QR code (or Quick Response code) is a kind of barcode popular due to its large storage capacity and quick readability. QR Codes make it easy for a person to perform a certain action by scanning a code on their smart phone. The use by retailers to market products to consumers is obvious.  Every Smart-phone owner is a potential user. More and more retailers are adding QR codes to their merchandise adding a further dimension to their shopping experience.

This allows shoppers to scan products via a QR code reader on their smart phones, and order and pay for the product directly without needing to do the transaction at a point of sale. Of course this is just one of many ways of shopping in a multifaceted shopping experience. Woolworths South Africa made use of this technology during its last big sale earlier in the year. Standard Bank is making big waves with its QR ‘Snap Scan’ for purchasing without cash or card.

Another UK innovation that emerged this year was “click and collect.” Department store House of Fraser moved its pick up facility from the back to the middle of the store reporting that customers are more likely to purchase items in addition to their online purchases they had come to pick-up. Being present meant that online customers are able to try on and exchange goods whilst in the shop.

The concept developed further into House of Fraser “virtual department stores”, a fraction of the size and cost of a full department store – which can get virtually any products on next day delivery. The stores consist of a customer services area, and many change rooms, making it easy for customers to pick up, try out, pay for or return items.

Innovations like this have brought out a creativity and an aggressive response to the so-called onslaught of on-line shopping, blurring the lines between worlds.

Interestingly there are even online-only and catalogue retailers who have started opening small shops to improve their customers shopping experience and to compete with finer tuned bricks and mortar customer service. What’s certain though is that shopping centre landlords are getting creative, innovative and fighting back by taking on the online retailers at their own game.

Who’s Going to Wear the Green Tights?

Gateway Hotel – Umhlanga

Have you ever witnessed one of those moments at a glittering event, where the company envoy ostentatiously hands over the enormous polystyrene dummy cheque to the suitably grateful charity representative. The cameras flash, the recipient’s knees bend a little, the company boss swells and flashes a self-satisfied smile. People clap and everyone swoons in awe at the selfless generosity of business. Onlookers declare: “They do have a heart.” And “It’s not just about the money.” Let’s not pretend that business doesn’t need positive affirmation from the community. Face it; we all like a good pat on the back.
Which brings up a growing trend in the world that has found its feet in South Africa. Green Buildings. If ever there was a way of scoring points with the community, government and those with not only green fingers but whose superhero sports green underwear – the environmentalist, this is it.  IF you’re a land lord don’t knock it, because something’s in it for you.
Recently this was demonstrated in the latest extension to that Mecca of upmarket shopping, Sandton City. A splendid dome graces the new Protea Court. This crowning expansion, involves interior refurbishments and 30,000sqm of new retail space. The Protea Court roof has been created with a product called Texlon, which is made up of multiple layers of foil known as ethylene-tetra-fluoro-ethylene (ETFE) it’s so green it could be mistaken for peas.
“Texlon is an innovative technology used worldwide but has been used for the first time in South Africa at Sandton City,” affirms architect Tia Kanakakis from MDS Architecture. “It was selected as a suitable roofing material as it is lightweight and an environmentally-friendly climatic envelope”.
Kanakakis pointed out excitedly: “The ETFE material is unique in that it does not degrade under ultraviolet light or atmospheric pollution.” The material doesn’t harden yellow or deteriorate. Furthermore, as the surface is very smooth and has anti-adhesive properties, the envelope self-cleanses in rain.” For Sandton City this means going Green and they are being richly rewarded already. Sandton City Manager Sharon Swain was able to announce the arrival of international names like Dumond, Inglot, Carlo Pignatelli, Miguel Vieira and Kurt Geiger to the centre.

Nedbank Ridgeside Durban

Of course Green buildings aren’t new. Twenty-one years ago two initiatives were launched which were foundational to  establishing the concept of energy-efficient buildings and green building: BRE (British Research Establishment) released BREEAM, and BREEAM became the basis for a host of other rating tools including LEED in the US and the much talked about Green Star in Australia.
What about the landlord cost/tenant benefit scenario?  Investor’s landlords may well ask what’s in it them, surely more of a good old pat on the back? The Australian Financial Review explored the importance of green-star ratings, which basically determine how Green a building is, in attracting tenants to buildings. When looking for leasing locations tenants are now demanding at least a four star rating. In Australian cities the demand for the now-coveted green buildings is driving up costs in refurbishing and retrofitting older buildings. Greener adds value and demands higher rents.
According to property investment analysts IPD, Green Star buildings are outperforming non-rated buildings on a financial basis by a significant margin.
Here in South Africa,  Llewellyn van Wyk, Editor at Large for Green Building South Africa writes: “Ultimately I believe green building is in the national interest, and should be an issue driven by Government: for this reason, I strongly supported the establishment of a Part X “Environmental Sustainability” to the South African National Building Regulations and look forward to it being populated with the full range of deep green building imperatives in due course.”

The world-class, high-tech design of the Durban ICC building itself incorporates green elements such as large glass facades for natural lighting, reducing the need for artificial lighting, and energy saving escalators which only activate when stepped on. In addition, the Centre utilises energy-efficient air-conditioning systems which build up ice overnight, which is used to cool the building the following day. Indigenous landscaping is a feature of the Durban ICC, with the majority of plants local to Kwazulu-Natal, limiting the reliance on irrigation. The Durban ICC’s water use profile is low for a building of its size. The installation of sensor taps in the bathrooms prevents water waste and even its toilets have been converted to a more efficient water usage system.

In the US the Green standard is held up by LEED, which has not been without its squabbles:  Henry Gifford has made his living designing mechanical systems for energy-efficient buildings in New York City. And he admits the (LEED) program has popularized the idea of green building: “LEED has probably contributed more to the current popularity of green buildings in the public’s eye than anything else. It is such a valuable selling point that it is featured prominently in advertisements for buildings that achieve it. LEED-certified buildings make headlines, attract tenants and command higher prices.”
 

By means of counter point Ben Ikenson reports on the current controversy embroiling LEED and hence whole Green Building bureaucracy in the US:”But for years, Gifford has been a tenacious and vocal opponent of LEED, claiming that the program’s “big return on investment’ is more a matter of faith than fact, and that LEED simply “fills the need for a big lie to the public.” Last October, Gifford filed a class-action lawsuit for more than $100 million against the USGBC, accusing the non-profit of making false claims about how much energy LEED-certified buildings actually save and using its claims to advance a monopoly in the market that robs legitimate experts — such as himself — of jobs. We may ask ourselves if we need this in South Africa.
Back to the benefits, conventional wisdom has it that not only does the environment benefit from the carefully considered construction that goes with Green building, but that people are generally happier and more content working or living in Greener buildings. Comments Dr Suzan Oelofse, IWMSA Central Branch Chairman, “The environmental benefits derived from green buildings can further be enhanced by including waste minimisation and recycling principles in this type of environment.”
Further to this, Oelofse believes that Green buildings should be orientated in such a way as to reduce the heat load and to optimise shade and thereby enabling the use of more energy efficient lighting systems and air conditioning.  This makes economic sense in the light of on-going increasing Eskom electricity costs and it makes sound economic and environmental sense to use renewable resources and to become as energy efficient as possible.
It seems the devil may be in the bureaucracy and that making buildings greener may require state rather than private regulation if the LEED struggles are anything to go by. But there are clearly many practical and financial benefits to Greening up the workplace. Besides there’s nothing quite like that warm approval that comes from cosying up to a superhero or heroine in green tights.

Backleasing, Backsliding, Boom or Bust

Cell C, South Africa’s third Cellular operator is now a tenant in 960 towers that they used to own! Huh? It’s true, it’s called a sale-leaseback or backleasing and that’s an investment that may interest you.

American Tower Corporation purchased, through its South African subsidiary Helios, 329 more telecommunications towers from Cell C for R965 million bringing the total to 960. American Tower will is  acquiring up to 1,800 additional towers currently under construction..

Cell C is now an anchor tenant on each of the towers purchased, and its relationship with American Tower is  enabling it to further enhance the quality and coverage of its cellular network.

So what exactly is a sale-leaseback when it’s at home in front of the fire? A sale leaseback option allows a company to sell its assets and lease them back simultaneously. This can be beneficial for businesses that are in need of an inflow of capital.

This practice isn’t new at all. In France it’s been popular for over thirty years. In other Western economies it’s widespread and its trends generally flow from the US.

Originally, sale and leaseback transactions were only applied to tangible assets, such as property, plant, machinery and equipment. However, since the mid–1990’s, its application has increasingly been extended to incorporeal property, including trademarks, patents, designs, copyright and know-how. When applied to intellectual property, the leaseback and associated rental payments are more correctly referred to as licence and royalties, respectively. But we’ll focus on leasebacks in property in this article.

Looking at world trends first: sale-leaseback’s in the US were at their highest in 2007 when $16.1 billion in sale-leaseback properties traded hands. Transactions have increased over the past 18 months. After hitting a low of $3.7 billion in 2009, nearly $4 billion in sales closed last year and another $2.6 billion had occurred this year so far.

In the US a set of rules was set up to guide such transactions by the Financial Accounting Standards Board in 2003. Crafted after the Enron disaster to force most off-balance-sheet financing back onto the books, these rules are expected to encourage many companies to convert, once popular, but now discredited, “synthetic leases” by which companies maintained control of the property while gaining tax benefits,  into more legitimate “true leases,” such as sale-leasebacks and net-leases.

Companies mainly used synthetic leases as a way to keep real estate debt off the balance sheet while reaping all the other benefits of owning real estate. (A synthetic lease is when the money to finance the asset is borrowed, and the lender takes a security interest against the asset, but has no further recourse against the borrower / operating company.)

There are instances in which prioritising the use of an asset is more important than wanting to own it. Usually in these situations liquidating assets would bring business operations to a standstill as the use of the asset is integral to the functionality of the enterprise.

Unlike a traditional mortgage, which often finances 70% to 80% of the property value, a sale-leaseback allows a company to get 100% of the value from the real estate.

Sale-Leasebacks can be constructed flexibly providing options to both seller and investor. Some examples would include offering a Joint Venture type involvement allowing the seller to share in a certain predetermined percentage capital growth gain in value, or structure buy-back options on certain pre-determined conditions. Investors can also provide themselves with certain down side protection.

Within this context one ought to consider the net-lease too, whereby a company finances a new location by finding third parties to buy the property and then leasing it from them. There is a surge in such transactions currently in Western Economies. It has been opinioned that this is partly because companies with weak credit ratings are finding it hard to get conventional financing and are increasingly turning to real estate as a source of cash.

However it has to be said that even solid companies with strong credit ratings are looking for ways to raise cash to retire debt and improve their financial ratios.  In fact, many of the biggest names in business — including Microsoft, and Wal-Mart have used leaseback over the years.

Bri-Anne Powell, investment consultant for Pam Golding Commercial in Gauteng is reported as saying “There are investors in the marketplace who have an appetite to purchase sale and leaseback properties, preferably industrial in nature, in visible, strategic locations. In terms of industrial property the areas of the Durban South, East Rand, Midrand and Centurion are favoured, and in regard to very large industrial properties it is preferred that these would comprise a main warehouse or factory which would be located near OR Tambo International Airport.”

Sale-leasebacks ought not to be a prospect for an investor who isn’t going to cope with the potential struggles of owning commercial real estate or an investee who can’t afford to loose his asset. If a company that’s leasing a property goes bankrupt, the court may not uphold the lease. So the’ buyer beware’!

The recipe to being a lucrative investor in sale-leasebacks is not just appropriate decision-making but to make use of one’s asset to maximum effect.  For the purchasing party to a sale-leaseback, they have acquired a property with potential for growth and a long term income flow from the lease. On the sale side of the transaction there is the liquidation of an unwanted or superfluous asset whilst retaining long term use of the same through a lease agreement.

Phoenix Industrial Park- gets well deserved boost.

Phoenix Industrial Park is one of Durban’s oldest and largest. It’s the focus of a new retention and expansion programme which will see the city boosting local business as it reinvests in the park’s future. The knock-on effect to real estate being one noteworthy spinoff.

We’ve heard a lot a of talk about public-private partnerships, so it’s good to see one taking off as the Durban Chamber of Commerce and Industry joins forces with Phoenix industrial Park Lot-Owners Association.

Phoenix is situated northwest of central Durban, KZN. It was established as a township in 1976. It is associated with the Phoenix Settlement, built by Mahatma Gandhi. Today Phoenix is the largest “Indian” town in South Africa.

Strategic business, commercial and industrial growth nodes have evolved along with the new King Shaka International Airport, Phoenix Industrial Park, Riverhorse Valley and the Dube Tradeport are important sources of investment and employment.

Sanlam launched the park in 1983. From disused agricultural land to being part of the economic core of the mushrooming northern Durban corridor, Phoenix Business Park has a lot to celebrate on its 30^th anniversary. The commercial and industrial real estate value has mushroomed since those early days.

The presence of well established brand names in the area has provided stability to commercial and industrial property. Big names making their presence felt at the Park are: Masterbake- the largest independent bakery in KZN; SPAR Group’s enormous KZN distribution centre as well as ABI, KZN’s biggest beverage manufacturing plant. The 230ha Park is made up 392 lot-owners and 460 businesses making it one of the largest industrial complexes in the country.

The Park provides employment to over 30 000 people from the surrounding residential communities. Business based here contributes R38K annually to the city in rates, though not cheap, reflect the area’s value as a commercial and industrial hub for the city. This area is part of the industrial growth north of the city including areas such as Springfield Park, Riverhorse Valley, Briardene and Mount Edgecombe.

The Phoenix retention and expansion programme has been welcomed by all stakeholders. Chairman of the industrial and lot-owners association Roy Ramkisson told a press conference that the programme would add to efforts to ensure on-going success of the park and the growth and retention of business during tough economic times. The association has for the last ten years improved the security and cleaning up of the park.

However the association needs help during tough economic times said Ramkisson. So other business organisations and the City have been welcomed with open arms. They work together to grow economic impact of the Park and work to retain and create more jobs.

Issues to be addressed by the partnership include infrastructure, maintenance and power supply constraints.

The retention and expansion programme for Phoenix Industrial Park was launched (hosted) recently at Spar’s regional distribution centre where more than 100 heads of industry from the association and City leadership gathered.

The programme will see a cross-section of about 100 businesses surveyed in the Phoenix Industrial Park on local business concerns, ideas, needs and views as to what makes harder or simpler to run business in the area.

Russell Curtis, head of Durban’s Investment Promotions Unit told a press conference that the retention and expansion concept was an international approach that had had fine outcomes in other countries. In fact the City had already run such a programme in conjunction with Durban Chamber in the areas of Prospection, Pinetown and Mobeni.

According to Durban Investment Promotions Unit, 80 per cent of new jobs are created via existing businesses, so it makes sense for the City and Business to forge ahead with their weighty plans and for businesses to get in line and participate for the full benefits to be realised.

In terms of its influence on real estate, surely anything that promotes the stability of business in Phoenix will promote stability of the real estate. In the words of Rawson Properties one of the area’s biggest estate agents: “Phoenix property offers investors a sturdy, long-term investment, which has proven its ability to thrive in all economic climates. More importantly, Phoenix has great potential for growth.”

 

British Council of Offices Conference- the Ripples Continue

British Council of Offices Conference Challenges Outmode Approach to Office Space.

The British Council of Offices (BCO) Annual Conference brought together the BCO’s membership – a mix of senior figures in organisations responsible for designing, building, owning, managing and occupying offices in the UK. (Although now done and dusted it is still worth reflecting on in anticipation of May 2014.) Approximately 450 delegates attended the Conference in Madrid, considered to be one of the property sector’s premier events.

The BCO Annual Conference  opened with a warning to representatives that much of the existing London commercial property market was becoming outmoded at a far greater pace than previously thought. Even some properties as young as 20 years were not keeping up with the modern office occupier requirements.

Lord Myners, a former chairman of Land Securities, was addressing the delegates at the first plenary session, ‘A Brave New World’, put forward that growing density requirements and hindrances caused by the antiquated planning obligations of section 106, and a need for on-going  enhancements to basic office functions such as high speed lifts and green-type air conditioning challenged the sector to keep abreast of customers wants and needs.

It was also emphasised by Lord Myners that the sector would need to adapt to a whole new office specification in order to continue attracting this new customer base since increasing demand from the Far East investors for commercial property in London was rising.

Another speaker, Sir Stuart Hampson, called on delegates to continue developing buildings of quality and resist the temptation to prioritise space over specification. He advised that sustainability shouldn’t just be a slogan, neither should energy efficiency; austerity would show up any high energy costs and make buildings seem prohibitively expensive to let if designers did not keep up with the times. Hampson argued that the public space around workplaces is equally as important as the interior –this would require investment in infrastructure and support from local authorities for public transport links to office developments. Hampson concluded by maintaining that it was necessary to treat tenants as customers, working hard to keep them engaged in order for office owners to become worthy landlords.

Research released in 2012 by the BCO found that building owners are underestimating the extent of obsolescence if existing valuations are used.  Those valuations suggest only 6% of UK offices are obsolete. However further interviews done by BCO with investors suggested that figures are more likely to be up to 15%. This suggesting that an even greater proportion of office stock won’t meet their future requirements.

The BCO has managed to identify an opportunity for developers and investors alike to assist in ensuring offices are suitable for the purpose of their occupiers, thereby reducing the proportion of offices classed as obsolete in future, and has previously called for office investment strategies which give as much importance to asset quality fundamentals and location as possible returns.

Next Conference

14- 16 May 2014
ICC, BIRMINGHAM

“The 2014 BCO Annual Conference is taking place in Birmingham, which is one of UK’s most vibrant, cultural and dynamic cities.

The 2014 Conference will focus on discovering new ways to create modern and innovative environments for people to work in. We’ll also be hearing from industry leading professionals on how changing certain elements of the working environment would help increase productivity and wellbeing. There will be topics and discussions on sustainable buildings with the session titled ‘On the Tin’, talks on ‘The Evolving Office’, how information technology is evolving, also how ‘Future Cities’ are re-inventing themselves and much more.. 

Birmingham has its stigma of being the industrial city, but with the investment and time put into reinventing its hub the city has become an exciting and innovative place for modern architecture and design. This conference will provide an excellent opportunity for delegates to visit projects showcasing energy efficient buildings and large campus headquarters.

Make sure you don’t miss out on this exclusive 2014 BCO Conference!” (From the BCO.org Website)

Airport Offices, Conference and Meeting Places – what to expect

 

With the advent of the aerotropolis many business people are expressing an interest in office and conference accommodation at airports. Terms bandied about include serviced offices, turnkey premises and virtual office. But how close to the airport can you get?

The Price of Converting to REITs

Many listed property companies are converting or considering converting to real estate investment trusts (REITs) in South Africa since the April 1^st new tax regime for list REITs was enacted. Other countries have gone down this road and one may ask as to how their share prices fared as a result of such action.

 

U.S.-listed real-estate investment trusts, or REITs, are on track to issue more new equity in the U.S. than in any year since 2001, according to Ipreo, a capital-markets data and advisory firm. REITs have raised $16.8 billion in U.S. IPOs and secondary stock sales so far in 2013, a pace that would top 2012’s record $36.6 billion.

 

During the last couple of years, REITs, aided by investors’ rabid appetite for income-producing investments, consistently have trumped the broad market. In 2011, while the S&P 500 was flat, the FTSE Nareit U.S. index jumped 4.3%. Last year the S&P was up 3.8%; the REIT index, 5.9%. No wonder, then, that companies in industries including digital-transmission towers, data warehouses, private prisons, and health-care facilities are seeking to convert to REIT status. And there are attractive opportunities to play this trend through the shares of companies likely to undergo a conversion.

 

In the US, for example, and much of the world follows the lead, a company seeking to become a REIT must satisfy two main criteria: It must derive at least 75% of its revenue from rents and other direct real-estate activities, and it must pay out at least 90% of its profits to shareholders as dividends. In return, those profits are untaxed at the company level, and the hope is that yield-focused investors will flock to the shares.

 

One of the most prominent conversions last year was American Tower, the leading owner of mobile-communication transmission towers, which moved to become a REIT soon after it had used up its tax-loss assets. The switch, effective last Dec. 31, immediately made American Tower the second-biggest publicly traded REIT. Its current market value is $26 billion. The stock gained 14.7% in 2011’s second half, after it started the conversion process, and last year added another 8%.

 

Now, American Tower’s smaller rival, SBA Communications (SBAC), is setting the stage for a conversion, already reporting adjusted funds from operations, or AFFO, as REITs do, alongside its usual operating-company results.

 

According to REIT commentators Online Barrons, Jeff Kolitch, portfolio manager at the Baron Real Estate Fund (BREFX), says that the average REIT fetches 22 times AFFO, a measure comparable to operating cash flow. At a recent price of around $50, SBA was trading at about 17 times this year’s forecast operating cash flow. At 22 times, the stock would be around $66.

 

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 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.

 

The following three datacentre REITs are good examples of REIT switching success stories;

 

• 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%.

 

Finally Corrections Corp. of America converted to a REIT and is the nation’s largest operator of private prisons. The company operates 66 correctional and detention facilities, and has a total capacity of about 91,000 beds, yes, that’s real estate, in 20 states.

 

Correction Corp.’s funds from operations (FFO) per share, a key REIT cash flow metric, grew 7% to $2.34 in 2012 from $2.19 a year earlier. Corrections Corp. has provided guidance for a 16% rise in 2013 FFO per share to between $2.72 and $2.87. Some of this growth will likely come from a one-time tax benefit of between $115 million and $135 million from converting to a REIT. Corrections Corp. plans to pay quarterly dividends at an annualized per-share rate of $2.04 to $2.16 this year. At the mid-point of this range, shares yield almost 2%. In addition, the company will pay a special one-time dividend of at least $650 million to investors during 2013. The special dividend will be a combination of cash and stock.

 

The lofty valuations that REITs now command in the US might not be sustainable over the longer term, especially if interest rates rise, offering good alternative income investments. And the requirement that 90% of earnings be paid out to shareholders means earnings can’t be accumulated for future investment, necessitating that still-growing REITs sell equity or debt to buy or build additional properties. REIT conversions could boomerang down the road. But at the moment, the haste to be a part of the REIT club holds rewards for discerning investors.

Durban’s Watercrest Mall Finally Putting Waterfall on the Map

(See my article at Skyscraper City and eProp too http://www.skyscrapercity.com/showthread.php?p=100579753)

The ‘Outer West’ area of Durban, also known as the Upper Highway, is a swiftly developing residential node, but with some distinct commercial nooks and crannies worth watching.

Durban’s Outer West retail landscape is thrusting into another phase of development with the development of The Watercrest Mall in Waterfall.  A number of years ago the Hillcrest CBD experienced much upheaval of the local arterial R102 Old Main Road as it was converted into an all dual carriageway. This was to accommodate the expansion in the area which included the rebuilding of Christians Shopping Centre and the bigger Hillcrest Corner.

Now a dual carriage way is being built, the first few kilometres already completed, for Inanda Road, the road that runs to the centrally located suburb of Waterfall. What were once sugar cane estates on either side of the 8km road from Hillcrest to Waterfall is now made up of luxury estates like Cotswold Downs Golf Estate, Kirtlington Equestrian Estate, 101 Acutts and Cotswold Fenns.  Construction of the dual carriageway up to the new Watercrest mall is expected to be complete within six months of the mall’s completion which is January 2015.

Watercrest Mall

Demacon and Fernridge market research companies have supported the development of a 43 410sqm Regional shopping centre in Waterfall. The primary catchment area of the centre is Hillcrest, Kloof, Forest Hills, Assegai, Gillitts Botha’s Hill, Molweni, Crest view, Crestholm and Waterfall.

The centre is configured on two levels. There are to be two supermarket anchors, Checkers and Spar as opposed to the current single anchor, Superspar. There is a Pick n’ Pay across the road at the smaller Link Hills shopping centre which has taken up many of the old tenants that have vacated the old Waterfall shopping centre. Link Hills was completed just a few years ago with much controversy over permissions and occupancy with eThekwini Metro.

Watercrest Mall Inside

Other representations in the new centre include electronics stores, mass discounters, fashion and homeware. A big plus for the area is the announcement of the arrival of Ster-Kinekor Theatre which includes six cinemas to replace the old Waterfall cinemas that serviced the greater area for many years. An important ingredient to keep the centre alive at night and in creating a community feel – a stated aim of the developers.

Just over 65 per cent of the total lettable area is under lease and some of the 120 tenants include Dion Wired, Game, Edgars, Truworths, clicks, Dischem, Ackermans, Jet, Pep, Cape Union Mart and a full Woolworths. The mall will have both lifts and escalators as well as 2600 parking bays of which two levels are to be covered parking. All the variety and components of a regional shopping mall are promised. The mall’s GLA is estimated at 43 410sqm with the view for a pre-planned further expansion at a later date of 20 000sqm.

Watercrest Mall Inside

The centre was the brainchild of current owners of both the old centre and the Link Hills centre across Inanda road, local family business The Rowles Group, who incidentally live next door to the proposed centre. In the seventies George Rowles developed his dairy farm into a residential area in what was ostensibley a farming community. From there he developed a small centre with a Saveway Spar and couple of shops. This centre went through several expansions over the years adding more shops and more floor area for the Spar, all this hnd in hand with the growth of the Waterfall community. Now the last morphing of that centre is to be replaced by the new Watercrest Mall.

The Rowles Group now shares 50% of the old centre with Acucap. Acucap properties is a JSE listed property company with a retail asset base that exceeds R 5 billion. The acquisition was based on the intention of the co-owners to invest R700m in the re-development of the existing property.

Researchers found that upmarket shoppers in the area are travelling to the Pavillion and Gateway centres due to “lack of critical shopping size and fashion mix” in the area. The Watercrest Mall should meet that need as a one stop retail experience. Its variety of shops alone, should help plug the leak of shoppers from the area.

Watercrest Mall Plan

The developers have secured planning rights and overcome many challenges including environmental applications as well as formal access to a suitable bulk sewerage treatment plant. This initial phase of 7000sqm is currently opening, the Spar, Tops and adjacent parking are being made ready for customers as this area is self-contained. This is so the old Spar can close and the remaining lower level demolished, this way work can commence on the rest of the mall.

My article also appaears  on the Skyscraper city and eProp websites too http://www.skyscrapercity.com/showthread.php?p=100579753

Has Commercial Property Been Shot in the Foot by Construction Collusion?

So have you hung out with commercial property developers lately? The complaining, the belly aching- it’s like being in the room with an unoiled machine. One may sympathise with much of it, we’re all under the same pressure – inflation, weak Rand, strikes, higher electricity prices and corruption. Oops did I say corruption?

The construction industry and commercial property development are a two piece bathing suit and one piece has just shot the other in the foot. So the news has been out for a while. Those squeaky clean corporates who’ve been tut-tutting at government corruption with the rest of us have had their snouts in the trough all along apparently.

But before we join the rest of the rabble and chorus: “off with their heads,” we may wonder what the implications are for the future of construction, commercial or otherwise. The rot runs so deep and apparently for so many decades that prosecuting authorities may struggle with the implications of action against this network of crooked scaffolding.

It’s possible that upon the conclusion of investigations, top executives and manages could face jail time and companies are looking at burdensome fines. Twenty of the country’s largest construction firms continue to be under investigation by the competition authorities for running a cartel over a number of decades and roughly 20 more subsidiaries will also face the music after being fingered by the larger firms, the penalties have been awarded, but the singing isn’t over yet.

The investigations have left the industry in a royal flap, with firms doing damage control to minimise the impact on their bottom line and executives and managers who have only just managed to avoid going to jail. The effects on the bottom line will be passed on to – you guessed it, future clientele, future development- that include private sector commercial property developments.

Moses Mabhida Stadium

But here’s a twist: the country’s currently engrossed in one of the most momentous infrastructure rollouts in its history; the NPA is faced with the predicament of pursuing the culpable parties with the necessary force and potentially decimate the sector. The knock-on effect could have dire consequences for large scale construction in general but also for private sector commercial property development.

There are calls to black list guilty firms. However the collusive practices are so widespread that there would be scant companies left in the country with the ability to handle major construction projects if the blacklisting is carried out. Of course this would only effect the most sizable private development– but the effects would be felt down the line.

The government is faced with some hair-raising decisions as the private sector has been one of the most vocal in the cries for an end to government corruption. Now the construction industry’s dirty washing is out for the world to see, some of those cries have become quite muffled as arguments calling for the government to think of the good of the industry and the future of jobs emerge. No doubt all with some merit perhaps.

Schalk Ackerman -Guilty

Senior executive from Stefanutti Stocks Holdings, Schalk Ackerman, was been granted Section 204 immunity by the NPA. Others followed. But now as we face the aftermath of this saga it’s difficult to tell whether commercial property development will suffer until the full consequences of corruption, exposure and prosecution take place. One optimistic fellow is Afrifocus analyst Hugan Chetty who despite the debacle told media: “I think a recovery in earnings will only take place in 2014. I would start looking at construction stocks’ earnings from the third quarter of 2013.”

In the words of Aveng Group chief executive Roger Jardine, responding to the collusion activities: ” this is a thorn in the side of our economy,” and that may be the rub, a thorn doesn’t go deep enough to kill but pierces sufficiently to cause widespread infection. Perhaps it would be best for the industry in the long run to rid the industry of all its infected members. Time will tell.

Green Leases – All You Need To Know

The mention of something called a green lease may conjure up something by a sea-sick lawyer or scribbled on elephant dung paper. But it is far more practical than it may sound to some who still have the idea of green being about separating the garbage or wearing daisies in strategic places. Green leases are here to stay and it’s likely if you have a foot in commercial property in South Africa that you’re going to need to know what one is.

Crudely a green lease would include obligations on the landlord and tenant to achieve targets for energy consumption and sustainability, among others.

At a residential level green leases would encourage landlords and tenants to agree to work together to make a home greener. The property owner typically commits to manage the rental in a sustainable way while the tenant pledges to reduce energy consumption, to recycle whenever possible and to follow other green lease terms.

In the world of big buildings and commercial interests such discussions can leave one quite discombobulated. As serious as these matters are, in order to understand the necessity of green leases we need to extricate ourselves from some of the genuine earnestness and angst with which the subject is typically approached.

No better place to do so than the good old land of Oz. No worries mate! Well it’s true, despite the rumblings for things to go green in the construction world in the US and Europe for many years, it was the practical Aussies who have played such a pioneering role in the world of green building and thence the accompanying lease framework.

The essential motive for the bringing about green leases in Australia was its federal government’s resolution not to inhabit structures that did not make a 4.5 star NABERS (not the soap opera) rating. NABERS is the operational rating system for carbon emissions in Australia. South Africa is in the process of developing a similar system. More recent legislation relating to mandatory disclosure has further strengthened the Australian regulatory framework and has had a positive impact on green leasing. The carbon emissions legislation in the UK has played a similar role in framing green leases.

Since the Australians have been down this road before, let’s consider what has typically been present in their green leases. According to Commercial Property firm Cousins Business Lawyers, experts in green leases, indicate the following ingredients in Australian green leases:

• A commitment on the part of the landlord to maintain the central services of the building to such standards to ensure the Australian Building Greenhouse Rating is retained.
• An obligation on both parties to consider “in a reasonable and co-operative manner” whether an improved rating can be achieved during the term of the lease and, if they agree, to take whatever steps lie within their control to achieve that rating.
• Both parties to commit to an energy management plan to operate the building in accordance with prevailing government policy on energy conservation.

Over in the UK there are increasingly stringent building regulations requiring developers to build more energy efficient buildings and Green Leases may be being used as a device to attract “Green Tenants”.  It is anticipated that in the EU and UK in the future, property owners will be under pressure to improve the energy performance of their buildings as a result of the introduction of Energy Performance Certificates (EPCs) for commercial premises and Green Leases may have a key role in enabling the implementation of the recommendations that will form part of EPCs. The commercial property industry is trying to anticipate legislative pressure that may manifest itself in the same way as it has done in Australia.

Here in South Africa, just last year, The Green Building Council and SAPOA (South African Property Owners Association) put their heads together and rather helpfully released a “Green Lease Toolkit” similar to the UK version and those used in some US cities. The Toolkit aims to facilitate a smoother path than some of the pioneers in this field have experienced thus far. In the Toolkit are some contemplative thoughts like:

“Green buildings present a textbook example of economic game theory. Each party stands to gain if the other acts, but loses if they act and the other doesn’t. The challenge is in negotiating an agreement where both parties act for green buildings to achieve an optimal equilibrium – a ‘win-win’. An informed tenant may be willing to pay a higher base rental if the costs and efficiencies of occupation are improved, so that the joint gain needed to stimulate investment into green development, can be achieved.” PG17 Green Lease Toolkit.

The Green Building Council and SAPOA’s document make the point that mutual understanding is what underpins any green lease.  They believe the primary purpose of the lease is to a) improve the operational performance of green buildings and b) deliver to landlords and tenants an “equitable share of the incremental value provided by green buildings.”

Finally the toolkit, which has a wealth of information and opinion from South Africa’s leaders in the field, States that a Green Lease seeks to achieve its goals through the governing of:

• The base building and fit-out quality in buildings
• The contractual requirements of facilities managers
• The behaviour of tenants from an environmental perspective
• Regulation of governing bodies (through continuing education)

Clearly conceptualising of the practical elements as well as articulating the more abstract notions has come together in a very sober yet encouraging document that behooves potential tenants and landlords to seriously consider the work of those who have gone before, as well as follow the advice of men and women who have laid a foundation on which others may build.

Whilst the aims of green leases are admirable enough, the provisions that impose obligations on the parties may have some unforeseen consequences:

•      For tenants, the cost implications of the green provisions may only become apparent some way into the lease.

• For landlords, the level of rent on review may be lower if the green provisions are deemed to be onerous on the tenant.
• As these provisions are largely unknown and untested in this South Africa, the uncertainty surrounding them may make green leases more difficult to sell on.

Regardless of one’s opinion of matters green it’s clear that green is the future and green has benefits. One thing is certain; if you’re going to get a green lease drawn up make sure you use someone with green fingers, that is someone who knows all about the new strides in green leases.

Private Prison REITs Released

Private prisons are big business and two big players with facilities in South Africa, US, Australia and the UK have just undergone REIT conversions. Corrections Corporation of America (CXW) and GEO Group (GEO) each received favourable Private Letter Rulings from the IRS and began operating under REIT rules.

By reducing their corporate tax liability, improving their access to capital and lowering the cost of capital the REIT structure provides more opportunities for these companies which are capital intensive by nature.

South Africa

To zoom in on a South African example: MMSP( Mangaung Maximum Security Private Prison),was the first of two South African Private Prisons and  the brainchild of the first Post-Apartheid Minister of Correctional Services, Dr. Sipo Mzimela, who, upon taking office in 1996, was appalled by South African Prison conditions, up to 300% overcrowded, and a seething hotbed of corruption.   In such conditions reformation is impossible. The GEO Group promised and by all reports delivered, more humane conditions.

The South African government signed two 25-year concessions for maximum security prisons in Bloemfontein and Louis Trichardt (Makhado) as part of its Department of Public Works’ Asset Procurement and Operating Partnership Systems (APOPS) in 2000. The two winning consortia were responsible for designing, building, financing, operating and transferring the prisons. The facilities hold about 3,000 inmates each and were fully operational in 2002 at a cost of about $245 million (Bloemfontein) and $259 million (Louis Trichardt), respectively. The Geo Group now manage these.

The prison gets 60% of its revenue from company-owned or leased real estate.

The Geo Group is the second largest of the two big players in the US. It has a current market capitalization of $2.5 billion and/or manages 100 correctional, detention, and community re-entry centres with 73,000 beds across the US, Australia, South Africa, and the UK. (The prison gets 60% of its revenue from company-owned or leased real estate.) The company estimates $45 to $50 million in annual tax savings from its REIT conversion. In January, GEO raised its quarterly dividend from $0.20 in 2012 to $0.50 a share, resulting in an implied yield of 5.6%. Shares of GEO have more than doubled (+105%) during the past twelve months.

Biggest Operator

The bigger name on the block is  one of the largest prison operators in the United States. CXW’s current market capitalization is $3.8 billion. The company operates 67 facilities and owns or controls 51 facilities in 20 states with a total capacity of about 92,500 beds. CXW’s REIT conversion greatly reduced corporate tax obligations. The company increased its quarterly dividend from $0.20 in 2012 to $0.53 after the conversion, resulting in a 5.5% implied dividend yield. Shares of CXW climbed 47% between March 2012 and March 2013, at least in part due to the REIT conversion.

No Shortage of Prisoners

Private prison facilities have increased their percentage of all prisoners growing steadily over the past few years, increasing from 7.9% in 2010 to 8.2% in 2011. Currently 10% per cent of total prison capacity in the US is operated under contract with private companies such as CXW and GEO. The remaining 90% of total prison capacity is operated by state and federal government. In light of government budget constraints, both federal and state governments have increasingly turned to private prisons. With only a few companies in the private sector and high barriers to entry, private prisons face limited competition.

Unaffected during a recession

The private prison industry is largely unaffected during a recession. States/countries may release some prisoners early to control costs, but overcrowding means demand is unlikely to fall significantly. According to a 2008 study by the Pew Centre, the US incarcerates more of its citizens than any other country and people are staying in prison longer, underscoring strong demand for facilities.

Controversy

It’s worth noting that some of these facilities are controversial because their profit motive encourages incarceration. In contracts to operate state prisons, CXW requested a minimum guaranteed occupancy rate of 90%, which did not go over well with many public interest groups. Private prisons achieve profit margins by controlling costs and spending less for personnel than their public counterparts, which raises the issue of the quality of staffing at these privately-run facilities. By way of example CXW now faces a staffing scandal in its Boise, Idaho, facility where 4,800 hours of supposed work time were falsified. That’s a direct violation of its contract with the state, and an internal and external investigation is underway. We’ll see how it plays out.

REIT conversion for CXW and Geo Group has unequivocally improved their financial positions and contribute to sharp growth in their stock values during the past year. Although prisons are relatively immune to the negative impacts of a recession, inmate populations generally accelerate when economic growth resumes and governments have more to spend on incarcerations. With the recession behind us, demand for these REITs should improve.

Isiphingo CBD is set to become a Dynamic Commercial Node

The multipurpose area of Isiphingo is to see itself transformed into a business and public transport hub.  Upgrades and infrastructure projects are intended to transform the node by guiding development, improving the built environment and restore business confidence in the area.

Isiphingo town centre (CBD) has strategic value within the city, serving as both a key business district and an important public transport node for Durban’s Southern Corridor.

eThekwini Municipality is calling this venture The Isiphingo Town Centre Renewal Programme. The first phase of which is to upgrade portions of Watson Road as well as Kajee and Jadway Streets in the Isiphingo CBD. This will includ the resurfacing of roads, improvement to sidewalks, parking, lighting and landscaping.

The Isiphingo town centre has grown over the years, becoming one of the Durban’s largest intermodal transport points with both formal and informal business activities. Sadly the lack of a supportive or approved framework to guide development has resulted in the town centre’s decay.

An initial framework plan in 2004 began outlining a vision and conceptual framework for the CBD as well as looking at some key proposals. One such proposal that emerged from this framework was the redevelopment of Old Main Road running through the centre of Isiphingo.

An action plan was developed in 2010 which tagged key projects, their anticipated budgets, time frames and the necessary municipal departments for taking the projects forward. Linked with this, some smaller projects were undertaken: a key informal taxi rank on Old Main Road between Alexandra and Church lane was formalised; a taxi shelter constructed and the public area was upgraded and spruced up for a more pleasing aesthetic experience for all, as well as for functionality.

The knock-on effects for the future of retail and commercial developments is very important. Potential retail and commercial value in the area has immediately bounced back. Further investigation into commercial and retail development is being investigated by eThekwini with the relevant land owners.

An early result of studies has been the proposal of a multi-use complex with retail opportunities on the ground floor and taxi rank activities accommodated on the upper level. This would be a partnership between eThekwini and the current land owners of Erf 2255.

Accommodating all the role players in the Taxi industry is going to be of utmost importance in the reconfiguring of Isiphingo as a multi-modal transport hub. The multiplicity of taxi rank sites currently will have to be taken into serious consideration.

is quoted as stipulating that: “The importance of Isiphingo as a multi-modal public transport hub means that its renewal programme should aim to cater to all users.” This includes motorists and pedestrians. “- in particular with regard to ease of access and linkages in and around the CBD.” The quote goes on to say.

It is anticipated that this process will improve the logistical movement of goods and services as well as commuters in and around the CBD, which in turn will revive Isiphingo as a viable commercial node for mixed use developments and encouraging a revival of retail and commercial property values.

Three US Student Housing REITs Dominate through Growth and Acquisition

Three public REITs, with total market capitalization of $6.4 billion, focus on student housing. The fragmented nature of the industry provides room for growth through acquisitions.  These REITs represent just 1.0% of the overall REIT industry. Student housing is a specialized real estate sector that experienced significant acquisition and development activity in 2012 and that continues to shine in 2013.

Solid dividend yields that currently range between 3% and 5% reflect the main attraction of the public student housing REITs. Investors envisage long term growth for the sector fuelled by positive demographic trends, including growth in the college-aged population. Colleges and universities have become less willing to invest their capital in housing for students, creating an opportunity for private owners and developers.

Student housing proved relatively recession resistant during the credit crisis because college enrolment did not decline. Students stayed in school during the recession rather than face the uncertainty of the job market.

• Campus Crest Communities (CCG) recently announced an acquisition that will make it the second largest student housing REIT. CCG is purchasing a 48% stake in Copper Beech Townhome Communities with an option to acquire the remainder of the company over several years.
• Education Realty Trust (EDR), which owns and manages 34 communities with more than 25,400 beds and provides management services for an additional 10,000 beds, is repositioning its portfolio through acquisition, development, and sales activity.
• American Campus Communities (ACC) is the largest student housing REIT and has been one of the most active buyers and developers of student housing. ACC added 51 properties with more than 30,000 beds totalling $2.2 billion in 2012. Its acquisitions included a 19-property portfolio containing 11,683 beds and 366 beds under development at an existing property.{Forbes}

The supply of student housing is also increasing, as illustrated by the REITs’ aforementioned strong construction pipelines. This risk is highly location specific. Supply and demand conditions vary widely by campus. Additionally, projects closer to campus bear less risk.

Notwithstanding the hazards, it is important to note that the sector’s positive influences compensate for the negative implications. Healthy dividend yields should attract investors while interest rates are low. The solid outlook for long term demand is another important factor that should attract investors. While supply is high, the risks are limited and location specific, since many colleges and universities need new student housing to accommodate growth, or to replace outdated housing. All these factors combine to ensure that public student housing REITs should remain well sort after by investors.

US Trend Favours the Single Tenant Office

Single Tenant

The most movement and interest in the US commercial property market over the last couple of years has been the single-tenant side of the market.  A feature of US commercial property correction and recovery has been the lack of construction especially among the office market. Some would put this down to the imbalances in the relationship between property and financial markets.

We now know how the office market was overbought, and although pricing was in line with fundamentals, it was not always properly aligned with underlying risks. Most would agree that the financial crisis rectified many of these imbalances, but with a price tag that included a severe recession and a swift correction in commercial real estate pricing and fundamentals.

The upside is that the financial crisis squashed funding for projects in infancy and impeded a development cycle that was already underway in many markets. The slow pace of recovery in the economy has translated into a comparatively tame office recovery as well. Vacancy rates are still tracking 15.5% and effective rents still 13% below pre-recession peak real rents remain well below replacement costs. Landlords are still struggling to maintain operating income.

If you’re and investor it makes far more sense to invest in established properties rather than in new buildings that will need to be leased up from scratch. As a result, new supply is now coming online at the slowest rate since the early 1990s. In a small but growing number of office markets, employment has already reached its pre-recession peak and rents are growing fast enough that new supply could be handled tentatively.

However multi-tenant development remains below trend and in line with the US average. The most movement and interest in recent years is on the single-tenant side of the market, where development now accounts for nearly half of all new office construction. Due to weak fundamentals and soft leasing trends, the development pipeline has shifted away from multi-tenant buildings, in favour of single-tenant and owner-occupied buildings.

From a market perspective it makes sense, as new buildings have lengthy lease-up periods that can be lengthened by a soft market. Single-tenant buildings are often built to suit and do not break ground without a tenant having already committed to a lease, so this is one way for investors to mitigate risk. New construction can be an attractive option for occupiers, assuming they have the capital to undertake such a project. Configuring space themselves is one plus. It also allows tenants to design specific IT requirements directly in the build-out process. Both Amazon and Microsoft have gone this route, developing impressive corporate headquarters in Seattle. Vertex Pharmaceuticals have done this in Boston and Devon Energy in Oklahoma City.

New single-tenant buildings may suit the needs of occupiers, but they also leave a void in multi-tenant buildings, as tenants tend to relocate within the same market. Much of this, however, depends on individual market characteristics, and we have yet to see significant negative effects from recent single-tenant development. Investors have shown interest in targeting single-tenant assets. These assets can offer competitive pricing, but also stable and simple-to-manage lease structures that likely include long-term tenants. They also carry a higher rollover risk in that, if a tenant does leave, it immediately reduces operating income to zero.

Throughout the recent recession in particular, single-tenant properties have performed well from the perspective of stability of income and occupancy. Simply put single-tenant office and industrial properties today are achieving higher yields than their multi-tenant counterparts. Concerning the single-tenant trend, the costs are high. Capital requirements may not be an issue for well-established high-tech firms or energy companies, but smaller start-ups will have different requirements. As we see the economic recovery mature this trend will likely firm up and include small firms as capital becomes more readily available.

Two Cities Get Terminals

Durban Harbour with Mouth Widened

Residents of Cape Towns have been complaining for lack of one for years and Durbanites believe their city deserves one too. We are talking about cruise ship terminals. It’s in the spotlight as South Africa’s two largest coastal cities seem to be pushing for the same thing. The news came recently that there has been approval for both the projects to go ahead with new cruise terminals in mind.

One may ask what the benefits are. The Durban Port Authority sees a dedicated cruise terminal, close to the ports entrance, as a natural extension of the development around the Durban Point Waterfront. The idea being that this is the most sustainable way to interface the operations.

In Cape Town, Future Cape Website, claims that a ground swell of Capetonians have had the cruise terminal as part of a broader vision for Table Bay Harbour by 2040 in mind for some time. The potential of using the E-berth as the dedicated site for the cruise terminal seems an important part of their vision. Regardless, Transnet has finally given the go-ahead for building a dedicated berthing terminal for cruise liners in Table Bay harbour.

This is in the wake of last year’s decision by the Department of Home Affairs to ban cruise-liners exceeding 200m in length berthing at the V&A Waterfront, citing safety concerns. The move got well-to-do travellers a little bent out of shape as they had to condescend to the likes of the Duncan Dock at Table Bay Harbour.

In Durban the planned terminal will be operated on a seasonal basis in line with the cruise liner schedules, but to ensure an on-going stream of income during the off season, the terminal will double as a meeting, conference and exhibition venue.

The recent breakthrough of Vetch’s deal between the Durban Point Waterfront developers and water sports clubs will also see development towards the harbour’s North Pier, which has been closed to the public since the harbour entrance was widened. Planned development of hotels, restaurants, shops and other facilities will mean the public can enjoy views of the harbour’s entrance channel again.

Transnet claims that the development of cruise terminals in Durban and Cape Town came in response to the tremendous growth that the cruise industry had enjoyed in recent years. Cruise tourism was the fastest-growing sector in the global tourism industry, and was set for continued growth.

Queen Mary in Cape Town

In Cape Town the plan is to complete the terminal within the next two years. Identifying suitable investors and operators is still in process. The development has been widely welcomed. Last year 19 visiting cruise liners brought approximately 11 144 passengers to the Western Cape which sustained a number of jobs in the tourism industry.

Opposition to the plan has often been centred on the competing priorities surrounding basic services, and the need for other areas of infrastructure which would serve broader Cape Town. But it seems that tourism will win this one since new jobs are a certainty in this regard.

No numbers are being bandied about yet by either Transnet or the port authority. However digging back to 2010, the ports authority boss Khomotso Phihlela told a press conference that an integrated cruise terminal in Durban could see an investment of not less than R500 million, and possibly up to R2 billion. This would include leisure and retail components, as well as a new Transnet office block.

Regardless of the costs it seems both Cape Town and Durban will see new terminals built. These will most certainly be another tool to bring in tourism to the two cities, boosting their prestige a little and causing a knock-on effect to commercial property value, certainly in precinct of the cruise terminals.

Catalyst Focuses on Real Estate in East Africa

East African Chief of Actis Paul Kavuma

Catalyst Principal Partners, the Kenyan based private equity firm is surveying the real estate opportunities across East Africa, where consumer demand is growing and the knock-on effect is being felt from recent oil and gas discoveries.

Another force to be reckoned with in East Africa would be the emerging markets focused Actis. The East African Chief of Actis Paul Kavuma left in 2009 to form Catalyst, taking a wealth of experience with him.

Paul Kavuma told the Catalyst Web News Room: “We have a strong pipeline of deals and are at advanced stages of completing a number of new investments which will be announced by the end of the year,”

In Kenya, Catalyst Principal Partners has started making investments from a broad $125 million fund and from a partnership dedicated to real estate.

The World Bank’s International Finance Corporation, accounts for about 70 per cent of cash raised for the first fund, and the rest came from individuals, insurance firms, fund of funds and others. The firm may approach the market to raise a second fund in the next two years.

Catalysts original investments were in Tanzania. It seems that some of the most attractive opportunities were outside Kenya, the region’s biggest economy. So far in 2013 Catalyst plans are focusing 35 per cent of the first fund on industries such as building materials and cement, technology and financial services.

Catalyst has set up a partnership with Acre Solutions, an international property developer. Together they have identified real estate projects. Investors are being sought. The partnership is also working on a mixed commercial, residential and hospitality development in Kenya requiring about $2 billion in investment over 10 years. Real estate investment trusts (REITs) are planned for the future.

Middle income homes, among other housing in east Africa has surpassed supply for nearly twenty years, and the sector has outperformed other asset classes such as fixed income and stocks. Catalyst, among similarly focused entities, expects the region’s already booming consumer demand and growing economies to get a further shot in the arm from oil and gas finds.

Reported in the Catalyst website newsroom:  CEO Paul Kavuma says, “capital has been raised from leading international and regional institutions and from credible regional high net worth private investors, with the quality of investors in being reflective of the attractive fundaments of the region and is a positive signal of the growing confidence in the economic prospects for East Africa”.

The Modern Office, Where Space Counts

Home Office

“Size isn’t everything,” goes the saying but apparently size is everything according to a recent report from the British Council of Offices (BCO). Everything seems to be getting smaller and supposedly more efficient and South African remarkable similar.

Looking at how office space is carved up, it’s up to the business decision maker to find a balance between ‘too much’ and ‘not enough’ space in order to facilitate productive, heads-down, focused work and supply a variety of team spaces that foster collaboration.

77% of the properties sampled by the BCO had a density of 7-12 sqm per workstation, 5% between 5 and 7 sqm (now that’s a squeeze,) and 18% had 14-38 sqm.

The skewed distribution around the 11.8 sqm mean indicates that occupiers are generally driving space hard, with the exception of the legal profession which sits at 20.9 sqm, probably indicating the continued reluctance by some in the profession to relinquish their personal offices.
What’s universal is the missing element of how much the individual workstations are used and, therefore, the efficiency of the overall floor space.
Employees today often feel as though the walls are closing in around them. And, the truth is: they are. Workstations are shrinking, technology is smaller and sleeker, collaboration is the new buzzword, and it’s now possible for employees to work from home. These changes have had a dramatic effect on how and where people work, as well as the allocation of space in the modern office.

The PC has shrunk; Computers no longer determine the formation of workstations.

“What is bigger than a bread box, smaller than your office chair, and weighs the same as an average 5-year-old child? If your guess is a PC monitor from 1990, you’re right.” Michael Schirnig

In the short amount of time that the PC has been around, it has changed dramatically (not just in terms of its capabilities, but in terms of its appearance, too). Slimmer flat screens and the proliferation of laptops and iPads means workstations don’t have to be as deep or as large, in particular if workers don’t have to have access a huge amount of filling/“stuff” around them.

Increasing privacy and collaboration in open-plan offices; More team space is designed into office space – sometimes at the expense of individual-workstation size.

The notion of collaboration is more in vogue, as is the amount of space devoted to it and some companies have reduced individual workspace size in order to facilitate the team spaces within the same overall size premises.

The result of increased workstation densities and employees working in closer proximity is communication – much to the benefit and bane of workers. More interaction facilitates collaboration, synergy, and brainstorming, but it also creates distraction.

Aside from designated rooms for collaboration, designers are factoring in comfortable furnishings to the places where people naturally congregate – outside lift lobbies, stairwells, kitchens and copy/fax/printer stations to facilitate informal, short-term collaborations.

The increasingly mobile Employee; Alternative office strategies mean smaller drop-in workstations, satellite centres, and an overall reduction in real estate.

Studies done on workstation usage typically indicate relatively little time is spent by staff at their desks – perhaps 40% on an average day. The balance is spent in meetings, discussion groups, sales calls etc – but essentially away from their workstations.

While not a huge factor in SA yet, in the UK and USA where office rental rates can be 10-12 times higher than in SA, this has been quite widely adopted – Sun Microsystems’ iWork programme has a target of reducing their ratio of desks-per-employee to 0.8, and has already saved them $50 million/annum on their way to a savings target of $140 million/annum.

Although it’s not possible to predict future workspace design changes, the interest in designing offices as efficiently as possible is not likely to wane.

When workspaces don’t work, employees can’t work, either.

Transnet has Big Plans for the Port of Richards Bay

The Port of Richards Bay is set to expand in a big way but not necessarily in the direction some would like. At a media briefing Transnet’s director of projects within the port Sudesh Maharaj announced that a R30bn Capex Plan for the port was being thrashed out.

The intention is to expand the country’s main bulk port up until 2020. Transnet is investing more than R15bn on immediate and medium to long term capacity improvement initiatives to expand and upgrade the Port of Richards Bay to ensure that the bulk port accommodates the growth in export demand.

Maharaj told the press briefing that Transnet commissioned a study in 2010 that projected demand for bulk export commodities through Richard’s Bay was expected to increase from the present throughput of 23 million tons per annum to a demand of about 50 million by 2040. Approximately 40 per cent of the volumes projected for 2040 are expected to be export coal, 25 per cent domestic coal and the balance general freight bulk.

The port is currently the location of the world’s biggest coal terminal, the privately owned Richards Bay Coal Terminal (RBCT). Owners are Anglo American, BHP Billiton, Xstrata, Exxaro and Glencore. The terminal has a capacity to handle 91 million tons of coal a year.

The estimations are that a new terminal would be able to export 14 million tonnes annually, with the room to expand to 32 million. Currently operations are at near full capacity of 23 million tonnes a year.

R15bn was earmarked by Transnet on a new coal terminal for emerging mining companies that struggle to get access to RBCT. However Transnet was set to spend R15bn of the Capex on upgrading the general freight side of Richards Bay Port as well! This would include a container handling facility to handle approximately 100 000 TEU (Twenty-foot equivalent unit) containers a year by 2020. Maharaj doesn’t believe there is any need for a dedicated container terminal, like the one at Durban. Maharaj points out that the port already has a container handling component. He believes that the general freight expansion will bring more than enough capacity at the port for container traffic and that there is no need for a dedicated container terminal.

The Zululand Chamber of Business has been calling for a dedicated container facility at the port. However Maharaj says Durban was the main container port which would be enhanced by the dig-out port, while Coege in the Eastern Cape was a future transhipment container port.

The projects are being undertaken as part of Transnet’s market demand Strategy (MDS) which has earmarked R300bn to capacity development projects over a 7 year period.

The Capex earmarked for Richard’s Bay was for the expansion and the replacement of equipment and for new infrastructure. Maharaj said there was a major reconfiguration planned for the Port. It included expanding the handling and offloading capacity of terminals, replacing redundant equipment, reconfiguring the Bayvue Rail Yard and building a proposed new open access coal terminal to unlock coal exports for emergent miners.

Transnet is approaching the construction process with scalability in mind so that the transition from the current port design to the expanded design is seamless. Of course time will tell as to how Transnet handles the process and to what degree the Port is disrupted.

The repercussions for Richard’s Bay in general are immense. Greater capacity for the port means increased flow of freight and containers not just coal. More storage space, increased warehousing as well has tertiary services will need to increase capacity too. Richard’s Bay commercial property should see a boom as the knock-on effect is felt from the activity at the port.
{Sources: Mercury; Ports.co.za;Transportworldafrica.co.za;Sturrockshipping.com}

South African Listed Property On the Growth Path

2013 is expected to see note-worthy growth for South African listed property according market experts. We are well into the year and from this vantage point the rest of 2013 is looking healthy as the sector out-performs equities, cash and bonds for the fourth year running.

Property Loan Stock Association (PLSA) chairman and CEO of Growthpoint Properties Limited believes investors can expect distribution growth from the sector to average between 5% and 8% in 2013. He anticipates listed property total returns between 10% and 16%. These figures are well below the total returns of 2012, though positive nevertheless. The advantage of this sector is that it can uniquely predict its short-term performance with good levels of accuracy, as its performance is underpinned with rental income from contractual agreements.

Sass reported to the Property Loan Stock Association (PLSA) that “With tougher market conditions overall, companies that can manage vacancies and costs are better positioned to deliver performance for investors,” says Sasse. “Sectoral portfolio composition will also influence performance. Weak demand will continue in the office sector. However, retail and industrial property will perform well off a base of low vacancies that should remain stable.”

The Property Loan Stock Association (PLSA) is the representative umbrella body of the property loan stock sector comprised of voluntary members, with the weight of nearly all of the funds within the sector behind it. The association has been modelled on NAREIT (National Association of Real Estate Investment Trusts) in the United States.

The PLSA newsroom quotes head of Listed Property Funds for Stanlib’s Keillen Ndlovu, who anticipates growth in the sector equal to or greater than inflation, thereby protecting investors’ income against inflation. She said: “listed property income should grow by over 6% in 2013 and improve to 7% in 2014. Our base case for listed property total returns in 2013 is 9%. Our bull case forecasts 16% total returns and our bear case only forecasts 2.2%.” The conventional wisdom here is that listed property is a great diversifier. It produces a regular source of growing income and capital growth over time.
Norbett Sasse predicts corporate activity from the sector carrying into 2013, especially the merging of smaller funds creating a critical mass in defence of hungry larger funds aggressively pursuing acquisition strategies.

It seems that newly listed property companies are continuing their growth strategies. However, they are beginning to step on each other’s toes as there’s limited physical property stock out there. Most listed property funds are playing in similar territories. Limited stock means that listed property companies will start to eye each other. This could lead to mergers and takeovers.

During the last two years, the sector saw a spate of new listings. While more companies are expected to join the sector, the number is likely to decrease in 2013. South Africa’s first residential listed property fund could debut this year. Equity raisings are looking to remain prominent in the sector, but not to the same extent as in recent years. About R11 billion of equity came into the listed property space in 2012. In 2011, it was about R16 billion.

April saw REIT (Real Estate Investment Trust) legislation being introduced in South Africa. Spearheaded by the PLSA for its positive impacts on the sector, this legislation will provide tax certainty and align South Africa with global investment structures and established REIT markets like the US, Australia, Hong Kong, Singapore and the UK.

South African Self Storrage – Ripe for a REIT?

Self Storage

There are REITs (real estate investment trust) in the US buying up self-storage facilities, speculating their high investment potential in commercial property.  Which begs the question: is there much of self-storage market in South Africa waiting to form part of a REIT?

To give you an idea of self-storage REITs in the US, Real estate investment trust W. P. Carey Inc. has acquired three Florida self-storage facilities from Safeguard Self Storage for approximately $25 million. The purchase was made through CPA: 17 Global, one of W.P. Carey’s publicly held non-traded REIT affiliates.

“We believe that these are very well-positioned and attractive assets. The quality of the assets in combination with the capabilities of the Extra Space management team and our own experience in the self-storage sector makes us confident that this will be a good and stable investment for our investors,” said Liz Raun Schlesinger, W. P. Carey Executive Director

Through its publicly held REIT affiliate CPA: 17 Global, self-storage investor W. P. Carey & Co. LLC has acquired five self-storage facilities : Alabama (1), Louisiana (1) and Mississippi (3) for approximately $17 million. The acquisition comprises approximately 117 348sqm. The properties will be rebranded under the CubeSmart name and managed by the self-storage REIT’s property-management division.

W. P. Carey Executive Director Liz Raun Schlesinger added, “We believe that adding these seasoned assets while retaining the experienced CubeSmart management team will enhance the value and stability of this investment. We know the CubeSmart management team well and look forward to working with them to maximize the value of these assets for our investors.”

One may want to argue that self-storage is an American phenomenon. Not so. It is true that self –storage in South Africa was practically non-existent 10 years ago. However, a few agricultural-land owners began building 25 to 50 garages on their plots on city outskirts. They developed the properties in phases as they generated cash flow, building an average of 300 units per facility. These facilities enjoyed an average occupancy of 90 per cent and a decent rental income.

The residential market was the target market for most self-storage firms.  The consumer was largely unaware of the industry’s existence. Marketing was scarce and almost no value added services were included.  It was also extremely difficult to buy an existing facility as the original developers were getting excellent returns and had no motivation to sell. Nor were there any specialty self-storage property-management companies, or an association to welcome potential investors into the industry.

Many of these shortfalls have been rectified. There are now roughly 70,000 self-storage units in South Africa, with an average occupancy of 80 per cent, meaning 56,000 units are occupied at any given time.  As the self-storage industry grows in South Africa, it also evolves. Innovations have been introduced such as precast concrete building systems, which allow a 400-unit development to be completed in just six months at half the cost of brick buildings. Sectional title developments are also available for small investors, who can purchase and register any number of units in a facility, much like purchasing apartments in a complex.

Storage Genie, started by Father and son Herbert and Dylan Wolpe,  is in the process of finalizing deals with American steel-building suppliers to import buildings based on a unique joint-venture strategy. The idea is the buildings are supplied on a rent-to-buy basis. Storage Genie provides the land and management, and the building supplier shares the revenue and future profit from resale.

The South African self-storage industry ranks fifth in the world in terms of the number of operating facilities, according to SASSI. Based in Cape Town, the company promotes the development of and investment in institutional-quality self-storage assets throughout South Africa. Pritty Woman

“The S.A. self-storage sector remains highly fragmented, and recent market turmoil could have the effect of hastening the first round of consolidation or hindering its progress.” Gavin Lucas of ISS (Inside Self-Storage) Depressed market conditions mean there is less capital to support an attempt to take the industry through an initial consolidation. However, the distressed trading environment will also present the opportunity for an established operator with the correct business model and platforms to acquire facilities that are struggling due to their own inefficiencies.

We may not be quite in the ballpark of REITs for self-storage yet but  the self-storage industry is pregnant with possibilities and waiting for savvy players to swoop in and make a go of an industry that shows a great deal of promise both for expansion and investment potential.

US REITs Keeping an Eye on your Neighbour

So it’s a well-worn phrase, “when America has the flu the rest of the world catches a cold.” But it’s hard to deny the influence of US trends. Following trends in the US REIT market may just give you the edge here in South Africa as REITs begin to manifest.

The Property Loan Stock Association have been working with National Treasury for over five years to formalise Real Estate Investment Trust (REIT) legislation in South Africa. The internationally-recognised REIT structure exists in countries such as the US, Australia, Belgium, France, Hong Kong, Japan, Singapore and the UK. So it seems prudent to keep an eye on the international ball as more and more REITs are going to be making their presence felt here in South Africa soon.

Scanning the US, February results highlight the role that dividend yields are playing to attract investors to the REIT sector. Total returns in February were largely driven by dividends, rather than price appreciation. REITs continue to attract investors because their dividends are more appealing than other investment opportunities in the current low interest rate environment.

The strongest in the REIT sector is the mortgage REIT’s 11.49% February dividend yield, although the sector’s total return was 1.65%. Everything once ‘tainted’ with the word mortgage seems to be shaking that stigma as each month progresses. In February, two new home financing mortgage REITs announced IPOs, Maryland-based Zais Financial (ZFC), who raised $201.1 million, and Florida-based Orchid Island Capital (ORC), that raised $35.4 million.

For lodging, regional malls, timber, self-storage and industrial REITs, February dividend yields measured between 2.5% and 3.0%. With the exception of timber, total returns for each of these sectors were negative in February, indicating that investors may not have the stomach for REITs with lower dividend yields.

REITs that own single tenant retail facilities, free standing Retail REITs, climbed to a steady 5.37% in February. Since tenants are liable for all costs, free standing retail REITs’ leases are not unlike bonds in that they generate regular income over extensive periods of time with low risk, especially if the tenant has a strong credit rating.

With monthly returns of 5.35%, returns for Health Care REITs were similar to that of free standing REITs. The positive effects of Obamacare as opposed to the negative impacts of the sequester have influenced investors here. The 4.44% dividend yield helped to fuel the strong monthly returns. It’s becoming clearer to investors that the Healthcare REIT market is less dependent of the US government than previously believed.

A number of REIT sectors had February dividend yields in the 3% to 4% range. Boosted by their dividend pay outs, general shopping centres (3.80%), manufactured homes (4.32%), and office (2.85%) REITs had solid monthly total returns.

One may note that the S&P market did better than the REIT market In February. Although US REIT return growth slowed in February, performance was on a par with wider international market trends. Improving market fundamentals and higher dividend yields continue to attract investors. As we wait for March results there is anticipation that it will be a stronger month than February.

Redefine Restructures Debt Gains Health and Redistribute Dividend Locally

Redefine International, the diversified income focused property company, continues to see significant progress in restructuring its debt facilities. A knock on effect has been the lifting of distributable earnings by 6.6%. In 2013 Redefine will be using its healthy status to acquire distressed properties in the United Kingdom with banks under pressure to dispose of them to reduce their leverage.

The firm has reported that £250million of legacy facilities have been repaid or successfully restructured. This after the reverse acquisition of Whichford, a property investment company based in the UK, which exposed the company to the high level of short-term debt.

The Near term debt maturity profile has been de-risked. There have been advanced negotiations to renew £70.7m of debt maturing in FY2013, the balance of which is to be refinanced or repaid. The Company used £7.8 million to repay the Coronation Facility last year. The £20.0 million facility remains available and is currently undrawn. The extension and restructuring of the £114.6 million Delta facility was also completed last year.

The UK central government, a stable occupier, occupies six of the seven income producing assets which were recently released from security for a £33.5 million repayment. One of the assets is the prestigious Lyon House development site in Harrow, North West of London. Excluding Lyon House the net initial yield from the above assets is pinned at 7.6% with a weighted average unexpired lease term in excess of 17 years.

Subject to meeting limited annual disposal targets the remaining £81.1 million Delta facility balance was extended to April 2015. The disposal proceeds, together with amortisation requirements, will be applied to reducing the facility balance.

Current Debt Repayment and Investment

• Equity: £8.6m
• £17.15m Crewe facility cancelled in return for £11.0m cash payment (part funded by Coronation facility)
• Reduction in interest of £1.0m p.a.

Future Debt Repayment

• Equity: £8.9m
• Assumed c£70.0m of near term facilities are refinanced at c60% LTV
• Approximate annualised reduction in interest charges of £0.5m p.a.

[Source: http://www.redefineinternational.com]

The company which is the JSE listed holding company of Redefine International PLC has reported, in terms of the South African business, distributing 4.38 pence per share. It had also raised around £127m in London, supported by RIN that contributed about £75m.

After restructuring the amount of debt on the balance sheet in relation to the value of the property assets is now below 60% on a pro forma basis.

Income returns accruing from future acquisitions and investments will flow to underlying shareholders in South Africa invested in RIN which has a 65.7% shareholding in Redefine International.

Latin Lessons in Retail – Africa Take Note

With the death of Hugo Chavez dominating news a while back many commentators continue speculating on the future of Venezuela’s property and retail markets, Will the current Latin Socialism continue? But despite the spread of so called Latin Socialism, Latin America is experiencing free market forces not unlike those influencing much of Africa. Have emerging markets of Africa and Latin America anything in common when it comes to the development of retail space for their growing middle classes.

Africa in general and South Africa in particular has much in common with Latin America’s labour force. Although Asia’s, for example, current competitiveness relies considerably on its working-age population, Latin America and Africa’s outlook for labour force growth is much stronger, as young inhabitants set to join the labour force make up a higher percentage of those continents’ populations.

Like Africa, Latin American consumer demand is rapidly growing and the expanding middle class currently represents about 60% of the total population and approximately 40% of total purchasing power. With demand for newer retail infrastructure increasing, opportunities exist for developers and retailers who seek to expand their consumer base.

However, people are asking questions about whether the emerging African middle class is as big as the experts believe. Rapid urbanisation rates are pushing up potential consumer numbers but not necessarily incomes. These factors, among many others, are inhibiting the intention of developers and retailers to build critical mass quickly in African markets. It may still be a while before their high expectations manifest in the real world.

In Latin America however, development is increasing shopping centre space. In most of the region’s countries, traditional high street retail has gradually deteriorated as retail markets mature, with retailers migrating toward shopping centres. This has for some time been considered one of the drawbacks of the shopping centre invasion. Small businesses are seen to suffer and local decay of commercial real estate creeps in. This seems to be universal, with stark examples in both Africa and Latin America.

Latin American supermarkets have already seen notsable expansion and, among retailer types, they are expected to expand the most quickly—with new developments anchored by Wal-Mart, Carrefour and strong local players such as Commercial Mexicana (Mexico) , Pao de Acucar (Brazil) and Jumbo (Chile & Argentina).

By way of comparison, international brands such as Nike and McDonalds and KFC do currently have a presence in shopping centres in Africa. But an international study of retailers by South African property management company Broll, indicates very few players are prepared to commit. Out of over three hundred companies surveyed, scant few were considering African markets at all. There is evidence of interest in SA and North African countries but little attention has been paid to markets that South African companies are eyeing like Kenya, Nigeria and Mozambique and Zambia.[Broll]

Enter the Power Centre. A power centre is an unenclosed shopping centre with 23,000 m2 to 70,000 m2 of gross leasable area that usually contains three or more big names retailers and various smaller retailers, usually located in strip malls, with a common parking area shared among the retailers. [Wiki]Power Centres seem to have less of an appeal in Africa in that big retailers get behind the big conventional mall developments or not at all. Also the Power Mall presupposes a culture of one-shopper-one-car. Not a common African phenomena.  In Latin American markets, Power centres have increased their footprints, with larger areas leased to specialized retailers. Power centres are also beginning to play a more important role in second-tier cities, targeted at lower income groups.

Changes in local government policies in Latin America as well as attractive yields and moderate risk have encouraged major international developers to focus more on commercial development in the region, and local investors to expand their operations to neighbouring countries. Companies such as BR Properties, Westfield and Brookfield began to invest extensively in retail property development nearly four years ago, and they have grown their retail asset portfolios across the region.

Alas in Africa problem-free land title is one of the challenges. Litigation from multiple claimants remains an ever-present threat. Disproportionately high costs of land and obtainability of large parcels of it in choked-up urban areas is a huge challenge.  Similarly, Africa is challenged by the limited availability of long-term debt and a relatively low level of interest by international institutions in African property funds. Electricity outages and all sorts of other elements in the supply chain push up costs hence high rentals are required in order to achieve a reasonable return.

In 2012, retail commercial real estate transactions in Latin America represented 37% of the region’s total volume of U.S. $12 billion, and 25% of the number of deals. [Source CBRE] The lack of adequate supply, especially in secondary locations, and consumer fundamentals such as credit availability, will continue to be key drivers for retail expansion, regardless of the specifics of each country market. Africa lacks a certain sophistication compared to its Latin rivals for foreign direct investment. Both these developing markets are hungry for attention from international developers and investors. Local government legislation and infrastructure may play a more important role than the emergence of a middle class with spending power to release the funds and set the wheels in motion for African retail space.

Aveng Grinaker-LTA, Shows Clean Hands and is Ready to Work

SA Construction Industry May Need to Wash their Hands before Going to Work.

Avenge Grinaker-LTA has been twiddling its thumbs waiting for the government to stop sitting on its hands. CEO Roger Jardine has a few choice words to say about the future significance of government infrastructure spend and corruption in the sector too.

Roger Jardine – courtesy IOL

“South Africa is on the verge of one of the most significant infrastructure rollouts in our country’s history. A growing economy needs a strong and vibrant infrastructure and engineering sector. It is important that the procurement process around infrastructure projects be handled with integrity and transparency. Public money matched with private sector capacity can deliver an ambitious vision to grow our economy, create jobs and develop our people. For us to deliver sustainable value for all South Africans, each and every stakeholder needs to clean up all elements of the industry and its relationship with its government and private sector clients.” Announced Aveng Grinaker LTA CEO Roger Jardine on the company website recently.

This comes as South African construction companies wait with baited breath for government to get a move on with its many promised infrastructure projects. The announcement by Jardine is not an exaggeration as time immemorial has seen how government infrastructure projects in history have either been stunning swan dives providing jobs and attending to a country’s failing infrastructure or disappointing belly-flops of red tape, white elephants and corruption. We could be faced with one or the other. Hopefully not the latter, especially in the light of possible investigations by the Hawks and the National Prosecuting Authority into allegations of fraud and corruption in the construction industry.

Since 2008 the South African government’s public infrastructure spend has decreased significantly. Despite ambitious plans announced by government in the 2012 National Budget totalling R844.5 billion, the construction sector has not seen this impact on the order book and only expect this to impact results in the next 18-24 months

Aveng Grinaker-LTA is active in the commercial, industrial and retail sector and has an extensive track record of successful contracts in all types of buildings. The Group’s capabilities encompass design, engineering, material selection, procurement and construction. Though last year the firm announced that while most of Aveng Grinaker-LTA business units delivered improved results, a number of problem contracts in Australia and South Africa, combined with the continued challenging construction market in South Africa, negatively impacted the headlines earnings which are down by 58%. .

In Roger Jardine’s press release he said: “We have a big thorn in the side of our economy. Collusive and anticompetitive behaviour, which appears to have been entrenched in the construction and other sectors of the South African economy, has left our country with a disgraceful economic and ethical legacy that must be rooted out as a matter of urgency. We need not only the right skills but also the right ethics and values if South Africa is to thrive and jobs are to be created. It is not only the responsibility of elected politicians to foster trust and integrity in our society. The private sector has a vital role to play. This goes to the heart of the society that we want to build.”

It’s clear that Jardine is taking the allegations very seriously and steps have been taken within the firm to create transparency even including anonymous hotlines for whistle-blowers. In its SENS announcement on the Aveng website the firm advised the market that a provision had been raised for a potential penalty by the Competition authorities.

It’s clear that Aveng Grinaker-LTA are not taking the corruption in the sector allegations lying down, but it’s also evident from Jardine’s statements that he is neither unaware nor doubting the truth of those allegations. South Africa’s construction industry is going to have to wash its own hands before putting them to work.

 

Boutique Hotels -there goes the neighbourhood

Grand Dédale Country House

Boutique hotels in South Africa are showing an inclination to follow international trends, focusing less on luxury and more on unique niche themes like culture or IT convenience. The use of property by Boutique hotels is unique in that old buildings are often focused for restoration as opposed to building brand new structures. Each individual hotel has the potential to both reflect the status of its neighbourhood and influence the character of the adjacent real estate in a specific locale.

In 1984, Ian Schrager opened Morgan’s Hotel on an unremarkable stretch of Madison Avenue in Manhattan, New York. Together with a number of other hotel properties and subsequent Schrager projects, the hotel is credited with ushering in a new design milieu and launching the era of the boutique hotel.

Now, over 28 years later, the influence of the boutique hotel has permeated every facet of the hospitality industry. Boutique, no longer the sole province of the rich and hip, is now big business, and its impact is increasingly felt, from once-forlorn airport hotels to luxurious urban resorts.

Last year saw two South African Boutique hotels winning awards at the World Luxury Hotel Awards at Pan Pacific Kuala Lumpur in Malaysia: the Upper Eastside Hotel located in Woodstock and the Robertson’s Small Hotel in the town of Robertson.

Most South African boutique hotels are up-market; in fact they litter the five start alliance list of 41 best hotels. In South Africa boutique hotels caught on like anywhere else but up until now it remains the domain of the upmarket and luxurious, renovating old buildings like the Rosebank Post Office in Rosebank or transforming old Mansions with rising

The Winston- Melrose

rates and pricey upkeep, the Winston in Melrose for example. The influence on an area is marked. Where a boutique hotel has moved into an area there has been a discernible up scaling effect on the location as a whole.

Similarly there is an influence from the outside in. Many boutique hotels, particularly those in buildings that have undergone adaptive reuse, draw their uniqueness, brand character and guest experience from the place and underlying building fabric in which they are located. The neighbourhoods, civic realities and historical context are all highly influential in the design themes of many boutique hotels thereby making them one-of-a-kind, memorable experiences that are targeted at a specific kind of audience.

An international trend that has seen its mark in South Africa is the movement towards the budget boutique hotel. Some may argue that by definition budget is not boutique. A rudimentary perusal of the web reveals many a budget hotel marketing itself as boutique these days. In 2013 we will probably see increased conversion and consolidation as less successful hotel businesses get scooped up or shut their doors. There is likely to be a continued lack of financing for both early and late stage hotel businesses without a clear road to profitability. We may expect an ultra-cautious approach to first-time hotelier entrepreneurs with little track record on the back of continued economic uncertainty.

Since the 2007-2009 recession, independent hotels have been more open to joining a larger entity to gain access to a larger customer base through global reservation systems and marketing campaigns. Established hotel operators have used their “conversion” brands to grow and capture high entry-barrier sites despite restricted debt and stifled new developments.

In South Africa there is a clear movement to take what used to be the bigger B&B’s and expand properties, creating boutique hotels with the view to up scaling the class of clientele and raising capital expenditure to increase profits in the long run. This narrows the gaps between upmarket B&Bs and the conventional boutique hotel. This trend shows a further influence on suburban areas and commercial nodes alike. Not unlike the canary in the bird cage, if the local boutique hotel closes down it’s bad news for the neighbourhood.

Sea Five Boutique Hotel Camps Bay

Boutique hotels around the world have an authenticity going for them. They are particularly suited to conversions of historic or interesting buildings. By doing this with sensitivity to the materials used and the original structure, they can be among the most sustainable and authentic hotels in terms of the built environment. The influence on local real estate proves to be a positive one and South African’s are keeping up with world trends. If you want to get started in the industry you can pick up a five star boutique hotel in Camps Bay for R31 million, on the market this month.

Building Boom Builds Rural Economy

Picture Courtesy of Global Giving Foundation

Rural South Africans, powerless for so long, are being empowered  as  schools, shopping malls, roads and residential developments in often, remote areas, have seen increasing development. Social grants have a great deal to do with this empowerment. Rural towns are humming with the sound of busy building as people are improving their homes.

“Social cash transfers promote human capital development, improving worker health and education and raising labour productivity. “ [Michael Samson, EPRI – Social Cash Transfers and Pro-Poor Growth]

A firm which sells building materials directly to cash-paying customers, JSE-Listed Cashbuild has over 190 outlets around the country, fifty of those outlets are in rural areas. The company reports that its rural business revenue has outperformed the revenue of its city outlets. The average revenue per rural store increased by 80%, compared with the company’s average of 60% over the last few years. [www.cashbuild.co.za]

Cashbuild’s outlying outlets attract home owners who want to make their own improvements to their homes.  The firm’s urban customers frequently buy from stores in cities like Cape Town, but arrange for their purchases to be collected at a rural store, in Thembalethu, a more rural location for example. This way money is sent home from the urban place of work.

The firm gives back to rural communities in a big way keeping the circle of development going. According to the Cashbuild website the firm regularly pumps prizes of building materials into rural communities, facilitating competitions for schools and NPOs giving away large cash prizes, clearly the Cashbuild is seeing something in rural South Africa that others could benefit from investing in.

Rural areas are seeing the benefits of social grants. In many house-holds a slice of the grant money is spent on alterations and additions to the family home. In the Northern Cape, for example, building activity rose by 86, 1%, when comparing the first quarter of 2012 with that of 2011.

Building activity in rural areas is being boosted by the government’s infrastructure plan. With the promulgation of the Special Economic Zones Bill, government intends to develop multiple and geographically scattered pockets of industrial development. Even SMEs confirm that building activity in rural communities is increasing.

Unlike what has become conventional wisdom on the matter, cash-paying rural customers are sufficiently advanced to be discerning about what they purchase. There is just as high a level of appreciation for quality goods as one may find among city dwellers.

Building materials supplier Afrimat says contract values are diminishing. Three years ago, it was common to tender for contracts valued at between R800m and R1,5bn. Today, contracts are more commonly valued at about R100m, says CEO Andries van Heerden in a 2012 Afrimat Newsletter. One interesting observation is that lesser sized contracts result in more jobs. This is at one with government’s plan to create jobs via infrastructure spend. [www.afrimat.co.za]

Sadly on the down side, the Expanded Public Works Project has failed to direct money appropriately. To date very little government funding has found its way to its intended targets. Infrastructure projects have yet to reach their full potential partnering with private sector to uplift rural communities together in a complimentary and supplementary relationship.

Picture Courtesy of Global Giving Foundation

The US Continues to Diversify its REITS Sector

The US continues to see the diversification of its REITS sector. South African REIT watchers are viewing US REITs with interest as their own country saw laws changing this year that are freeing-up the market.

Businesses aim to enhance shareholder value by taking advantage of REITs’ favourable tax treatment. Timber and cell phone companies have already established REITs. Other non-traditional real estate companies, ranging from riverboat casinos to sports arenas and prisons, are also considering the REIT format. Among the emerging subsectors are billboard REITs, which are expected to debut in early 2014.

You may ask how billboards qualify as a REIT? As it turns out the infamous US tax department, the IRS, has relaxed REIT rules by widening the definition of what constitutes “real” property, which is eligible for REIT status, versus personal property, which is not eligible for REIT status. Prior to recent years, the IRS considered whether structures were physically moveable. Recently, however, the IRS has shifted its view to consider the owner’s intent for a structure. Therefore, if owners intend for structures to be permanent, like billboards or cell phone towers, the companies can now qualify for tax treatment that is appropriate for real property, making them eligible for REIT status.

Quite how the South African players will manipulate the market when the new REIT structure will come about this year is hard to tell but it may be worth watching how the US trends play out. The case in point is an arguably obscure Billboard REIT.

There are just a handful of players in the US billboard markets.
– CBS Outdoor America is to be converted to a REIT. The plan is to sell outdoor operations in Europe and Asia. Analysts value the business at $4-6 billion. Upon IRS approval the REIT conversion should be up and running by 2014.
– Louisiana-based Lamar Advertising, with a market cap of $4Billion has announced plans to pursue REIT status.
– Clear Channel Outdoor, the second largest firm in outdoor advertising in the world, reported that they have no current plans to convert to a REIT.

But alas, the billboard REIT subsector is considered to be looking at very modest growth over the next few years. Any growth that is forthcoming  is likely to come from acquisitions, given the fragmented nature of the industry and hence the scope for consolidation.

Another challenge faced by billboard REITS is that of rents which are exceptionally dependent on the health of the economy. In difficult economic times, it is easy to pull back on billboard advertising.

On the up-side, growth is expected from digital billboards and posters, with higher rents as they become more commonplace. Digital displays allow advertisers to change their messaging more often, allowing them to target demographically at different time periods. Wifi technology also enables advertisers to send ads from billboards to mobile phones adding further flexibility.

The IRS has ruled that billboards qualify as real property. Specialized REITs have been very popular in recent years, but in the crowded REIT space, it remains to be seen if this new property class with modest organic growth prospects will pique the interest of US investors. Whether South Africa will see this same rush to ’REITise’ every industry remains to be seen. If all the property companies currently listed on the JSE adopt the REIT structure, South Africa will boast the eighth largest REIT market in the world.

Umhlanga Continues to Expand

Aerial view of Umhlanga Ridge (foreground) and Umhlanga Rocks (on ocean beyond) Wikipedia

The greater Umhlanga commercial/mixed development space continues to grow in both sophistication and property. While other similar nodes in the country consolidate or taper off, Umhlanga development seem to be on track.

Recently property developer Vejan Pillay’s Misty Blue Investments launched its 6th major development in 10 years. The development is a multimillion-rand residential development nick-named ‘Central Park’.

Central Park is situated besides the landmark Umhlanga Porsche dealership and another of Pillay’s projects, the R150million Urban Park mixed use development near the Parkside precinct.

It’s clear that the focus in the last few years has been the development in front of Gateway and around Parkside, but these developments of Pillay’s are likely to be a catalyst for development around the Porsche dealership which overlooks the N2. Direct access to this location from the highway is planned and includes a new interchange.

Central Park is to be developed over two phases: phase one will be made up of 177 residential units hugging a park area with a running track. Other features include an in-door pool and the uniquely designed vehicle access to apartments feature.

This all comes on the heels of the recently opened mixed use Urban Park and Spa with its 92 room,  four star hotel, 159 residential units with commercial and retail outlets planned for the lower levels. The hotel is situated on the corner of Meridian Drive and Umhlanga Ridge Boulevard. The hotel is managed by the Durban based Three Cities Group that manages The Square Boutique Hotel also developed by Misty Blue.

The word on the street is that there is still a huge demand for residential flats in the area, the twist is that it is estimated that up to 60% of the buyers are investor buyers looking to rent out the properties.

On the horizon, and expected to be completed by mid-2014, is the Gateway Private Hospital. Construction has begun already on the corner of Aurora Drive and Umhlanga Ridge Boulevard within the Umhlanga Ridge New Town Centre. The 160 bed hospital will be equipped with six theatres, an ICU and high care facilities. The focus will be on high-end specialties. A casualty, pharmacy and various out-patient facilities are to be included.

Beacon Rock is another development recently opened, situated at the entrance to Umhlanga Village. The mixed use building offers a variety of top brand restaurants as well as a Mini, Rolls-Royce and Aston Martin showrooms. There are also 24 luxury apartments with exquisite sea views.

You can’t keep the town down; Umhlanga remains a force to be reckoned with in the greater Durban landscape.

Gateway & Umhlanga Ridge

 

 

Cromwell On Track for Diversification

Cromwell announced on the Australian Stock Exchange on 7 December 2012 that it was undertaking an equity capital raising of up to AUD163 million to seed a new unlisted property trust, reduce debt and provide additional working capital. Cromwell announced this month that an increase in  operating earnings is driven by the secure revenue stream from its Australian property portfolio.

Cromwell Property Group (CMW, formerly Cromwell Group) is an internally managed Australian property trust and funds manager with an Australian property valued in excess of $1.8 billion and a funds management business that promotes and manages unlisted property investments. Cromwell has two key business units which focus on property investment activities; from equity and capital raising to property management and leasing.

The Cromwell Capital Raising is being undertaken by way of underwritten institutional placements of new Cromwell stapled securities (“New Securities”) at an issue price of AUD0.785 per New Security to raise up to AUD143 million and a non-underwritten security purchase plan (in terms of the rules of the Australian Investments and Securities Commission) to eligible Cromwell security holders to raise up to AUD20 million (GBP13 million)

The Company subscribed for AUD40 million (£26 million) worth of new securities in the capital raising. Furthermore, 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 AUD800,000.

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

The transaction is in line with Redefine International’s objective of increasing its presence in the Australian property market and is expected to be earnings enhancing for shareholders in the medium to long-term.

Cromwell Property Group (ASX: CMW) today reported at the end of February a 24% increase in operating earnings to AU$45.9 million for the six months to 31 December 2012, driven by the secure revenue stream from its Australian property portfolio.

During the period, Cromwell completed an institutional placement, raising $143 million and an SPP for existing security holders closing in early February 2013, raising approximately $39 million. Both were materially oversubscribed.

Cromwell announced this week that it will continue to seek investment property and funds management opportunities consistent with its strategy of providing superior, risk-adjusted returns to security holders and investors over the long term.

 

“We are seeing increased competition for property assets, indicating property values may soon enter a new period of growth as cap rates reduce to close the yield gap between property and other asset classes.” Chief Executive Officer Paul Weightman .

 

“We have the skills, resources and capital to take advantage of opportunities for growth, however we remain, committed to maintaining the disciplines that have contributed to our consistent outperformance.”

 

 

 

Social Grants – How They Influence Rural Retail.

Social grants queues in Vosloorus.photo by Simphiwe Mbokazi

Keillen Ndlovu, head of Property Funds for Stanlib has been widely quoted of late, saying: “When it comes to retail property investment, the lower income market is still the place to be. It is where the population is and where the growth is. There are still opportunities for smaller retail centres with a convenience element.”

For small town and township retail, food and fashion are basic ingredients. Proximity to public transport is a further need. Banking facilities: branches and ATMs also contribute, given low Internet penetration and a preference to transactions in cash.

Shopping centres in this subsector show a monthly shopping cycle. Pronounced spikes in shopping at month ends and early stages match payments of government social grants and salaries for the growing working middle-class, less reliant on discretionary spend, providing more stable trading densities.

Someone else to weigh in on the subject is Marc Wainer, chief executive officer of  Redefine Properties, in an interview with Denise Mhlanga from property 24 said “with interest rates expected to remain low for a while, consumers appear to be spending more than in previous years and rural shopping centres are benefiting from the Government social grants.”

Marietjie Oelofse of the Aida Lichtenburg office says “This is in stark contrast to the situation five years ago, when many retail shops in town centres stood empty. But minimum wage payments and better distribution of social grants have increased disposable income, creating a demand especially for clothes and furniture.

As a result, there is strong demand for space from retailers catering to this growing buying power.

Clearly social grants paid by the state are helping retailers in township shopping centres weather tough economic conditions.

Two Shoprite stores owned by Futuregrowth’s community property fund, Diepsloot Mall and the other in Tembisa, enjoyed the highest turnover per square metre of any Shoprite outlet in SA over the past two years.

Futuregrowth portfolio manager James Howard told Business Day Briefing that the fund’s shopping malls in Diepsloot and Tembisa were consistently rewarding despite “harsh” economic conditions, thanks largely to the social grant money that was being spent by the two communities. The centres improved turnover even during the credit crunch since few community members were in the market to borrow.

Shoprite has a long history of investing in township and rural property even before returns looked promising. Howard said: “Shoprite has backed rural development for the past 15 years, before these areas were seen as investment hotspots. We have seen land in places that are considered ‘no-go areas’ develop into attractive stores.”

The influence of social grants is even more visible when looking at the payout points themselves. But there are pro and cons.

Talking to the Mail&Gaurdian, Andrew Mills, director of Boxer Superstores, part of the Pick n Pay group, said spending on social-grant payout day at the 95 Boxer outlets in South Africa was bigger than it was on payday. He said recipients who lived in remote areas often did all their shopping after collecting their grants at a store to save on transport costs.

The recipients are encouraged to spend 10% of their grants on goods in the store before the remainder is withdrawn as cash from the tills. Mills added that Boxer consumers were “wise” and the stores tried to offer promotions on pension-payout days to discourage people from shopping elsewhere.

Mike Prentice, Spar’s group marketing executive also talking to the M&G, said its supermarkets also experienced “massive spikes” in sales on social-grant day and the days that followed. “It’s definitely the biggest trading day of the month. It changes the entire complexion of the store over that time.”

Spar has 850 stores throughout South Africa and, like Boxer; almost half are located in rural areas. Many Spars are payout points for the grants, although the biggest spikes in spending that Prentice speaks of, are seen in rural areas. Preparation for payout days involves extra staff at certain stores. Shelves are restocked with top-selling items such as rice, maize, long-life milk and airtime. Social-grant payouts totalled close to R100-billion in 2012. More than half was for child support and the remainder was largely for old-age pensions and disability grants.

But not everyone is happy, “Retailers acting as payout points for social grants are problematic” said Social Development Minister Bathabile Dlamini in a public statement. Dlamini said the department was concerned that those drawing their money from retailers were not given the full amount and were obliged to buy a certain amount of goods at these stores.

“The retailers are only interested in money, not the quality of food our people eat. We don’t mind communities coming to this kind of agreement, but not when they are forced into it.”

Back to Mills, who says customers were encouraged, not obligated, to spend 10% in the store at the month’s end. “They do their shopping at the same time, because it is more cost-effective for the customer and saves in transport costs.”

Mike Prentice, Spar’s group marketing executive, said its customers were not expected to buy in the store. “It is not even implied,” he said. “People just tend to do their shopping there anyway.” The fees cost each store 0.25% of the total payout, he said, but the resulting revenue surge more than made up for it.

Social grants are an important source of cash income for households with eligible members. While these are important for poor and vulnerable households and individuals, there is a disturbing trend – the number of people (households and individuals) dependent on social grants as major or only source of income is increasing.

According to Booysen and Van der Berg (2005) HSRC paper, the number of beneficiaries increased between 1998 and 2003 from 2.8 to 5.8 million, which represented an annual growth of 15% or an increase from 67 to 125 grants per 1 000 of the South African population. However, the increase in 2003 could be attributed mainly to the introduction of the CSG (Child Social Grant) and the increase in public awareness of eligibility for grants. Nonetheless by 2009, the number of beneficiaries was estimated to be 13 million (22% of the population) and, rightly so, the government has started to get concerned about this high dependence on social grants. The social grant system transferred about R78 billion in cash grants (DBSA 2009) and has continued to grow, putting enormous pressure on the fiscus.

Depending on what measures government chooses to take, to reign in the growth of social grants, will determine the level of reliability dependence those social grant will be on influencing secondary market spend trends. An entire commercial and retail industry may be dependent on the outcome.

Rivonia and Sunninghill Suburb Profile

Rivonia has had significant roles to play in Johannesburg’s history, variously as a farming area, mink & manure belt, to upmarket suburban area, to commercial property node. Together with its junior partner Sunninghill, Rivonia has become known as something of an IT hub with promising rentals for property investors.

Sunninghill, considered to be both commercial and residential, is bordered by what used to be Johannesburg’s outlying suburbs of Kyalami and Woodmead, now commercial nodes in their own right. Once open land is now occupied by residential complexes and businesses.  The N1 forms Sunninghill’s southern boundary with access via the Rivonia off-ramp.

Sunninghill has a large concentration of offices, mainly in the form of office parks, including Sunninghill Office Park, Unisys Park, The Crescent and Ariel Office Park. A growing residential demand and an Inadequate road infrastructure has been the biggest disadvantage for the development of the node, with Witkoppen Road and Rivonia Road suffering from severe traffic congestion. Significantly the new K60 has been laid out through the centre of the suburb. This should assist enormously.

Buses and minibus taxis provide public transport on the main arterials. Further road upgrading is underway, and continues to be necessary. Pedestrian connections between offices and shopping facilities have been planned, though continuous pedestrian linkages are still lacking.  A number of high-density residential developments are emerging in the node. The node has limited social and community facilities. One of Johannesburg’s better hospitals, Netcare group’s Sunninghill Hospital is located in the area. There are also a number of religious facilities, pre-schools and a post office

Rivonia lies between the Braamfontein Spruit and the Sandspruit, and was the location of Liliesleaf Farm, where in 1963 many of the accused in the notorious Rivonia Treason Trial were arrested. A Carmelite Convent, accommodating Carmelite Nuns, sat in the centre of the village until displaced by commercial pressures.  In a commemorative move, the large shopping centre first built on the site was named The Cloisters.  The main retail thoroughfare in the area, Rivonia Boulevard, is the location of several shopping complexes as well as many other shops and restaurants.

Rivonia and Sunninghill are lumped together by brokers and others in the real estate business for practical reasons. They have much in common both being outlying suburbs of Sandton, and intermeshed with each other’s economies. Together they are considered an IT hub. For example, Hewlett Packard’s main Southern Africa and South Africa offices are located here as is the registered office of Fujitsu South Africa. Companies located in Sunninghill include Acer, Eskom, PriceWaterhouseCoopers, CA, AstraZeneca, RCI and Unisys.

Primary shopping centres in Sunninghill include Chilli Lane, comprising better known retailers such as Woolworths, Pick ‘n Pay and a Virgin Active gym; The Core including offices and restaurant retailers; Sunninghill Shopping Centre comprising speciality restaurants and retailers Spar and Woolworths. Low rentals and good value in Sunninghill resulted in a number of large users taking up space in 2012. The area continues to be popular with small to medium businesses.

Recently a few modern individual buildings have been developed. Refurbishment of older office parks and buildings continues. Most notable would be 345 Rivonia Boulevard, Tuscany Office Park, Homestead Office Park and Bentley Office Park. The need for office space is on-going, mostly  from private, medium-sized businesses and owner-occupiers. As these businesses grow, they will require more space.

According to Broll Research a peak of R125sqm gross was reached for rentals of prime-grade offices back in 2008.However as 2009 hit, rentals began to drop to R115sqm before making an upward movement. Prime-grade gross rentals are now looking fixed at R125sqm. Average rentals for A-grade offices are between R85 and R100sqm gross. Vacancies are fluctuating due to disruptive road-works on the main thoroughfare – Rivonia Road.

So as things stand demand remains steady to flat as do sales and supply. The space that reports to be in demand is from 150-1000sqm; Cap rate 9-10%; Lease escalation 9-10 % and Operation cost escalation is pegged at 10-11%. [Stats courtesy Broll]

US REITs Reward Investors With Solid Growth and Strong Dividend Pay-outs

REIT

Believe it! The FTSE NAREIT ALL REIT Index returned 6.05%, outperforming the NASDAQ (+5.53). So far this year the US REIT sector has experienced steady, healthy growth. Analysts’ predictions, looking into 2013, range from a firm thumbs-up to cautiously optimistic.

To kick off, there seems to be an increased demand for warehousing which is being attributed to the US general economic recovery. Industrial REITs are benefiting as a result.  Year-to-date, the sector posted 8.90% return. Many believe that Prologis (PLD), whose $16.75 billion market capitalization represents almost 75% of the US industrial REIT sector, has driven the sector’s expansion.

In January, Prologis announced plans to set up a REIT in Japan through Nippon Prologis. PLD has also announced an agreement with Amazon.com to build a more than one million square foot distribution centre in Tracy, California!

Lodging REITs are also performing well in the new year, most probably based on the anticipated economic strengthening in 2013. Year-to-date through February 15th, the lodging sector returned 9.74%.

As the U.S. housing markets strengthen, the demand for lumber is growing. In December, housing started climbing to an annual rate of 954,000, the highest rate in more than four years. (In the US most houses are made of timber.) The result sees the timber REIT sector growing by  (8.89%).

Bucking the trend slightly is retail. Despite an improving economy, concerns remain about growth in the retail sector. The overall return for retail REITs so far in 2013 is 5.59%. Market fundamentals have benefitted from the lack of new construction (of retail), but retailers are cautious about expanding. Retail sales growth in early 2013 is positive.

On the other hand Office REITS are up (5.59%) – looking steady. Office market fundamentals in the large coastal markets are good, but office returns have been moderated by many markets that have not yet recovered.

Returns for healthcare (6.42%) REITs are solid. Many believe that the healthcare sector received a boost from Obama’s November victory and the early stage implementation of Obamacare, with increased demand for health services.

Of all the REIT subsectors, mortgage REITs are among the strongest, with a return of 11.44% year-to-date. Coming into the New Year, Annaly Capital Management (NLY), a residential financing REIT, announced plans to merge with CREXUS (CXS), a commercial mortgage REIT in late January.

” The real estate sector is currently benefiting from a number of tailwinds that include the general search for higher yield (REITs pay dividends) and lower volatility, better data emerging from key markets and the U.S. Federal Reserve’s continued focus on the mortgage and housing markets, EPFR Global said in a press release on Friday,” Kenneth Rapoza wrote for Forbes

The positive effects of low interest rates for mortgage REITs continue to outweigh the negative implications of mortgage prepayments that drew the sector down in 2012.

So it’s clear that Lodging and Industrial REITs are benefitting for the US economic recovery. Retail and apartment fundamentals are good, though a little uncertain. Housing market recovery is fuelling growth among timber REITs. Due to their strong dividend pay-out and improving market fundamentals investors continue to favour REITs.

 

 

Opportunity Knocks in SAn Rural Areas

Shopping Centres in rural areas are becoming more sophisticated and formalised; it’s the place to do business rurally.

Some towns have up to 600 000 people, and consumer demand for convenience as well as steady population growth offers major prospects for retailers.  In South Africa, people living in rural areas and townships (or second economy locations) spend more than R 308 Billion annually, representing 41 per cent of total consumer spending. [The Retail Lab]

The similar research shows that South African Shopping centre development trends are moving towards an oversupply situation in urban areas, yet retailers are still cautious when it comes to considering the opportunities within township and rural areas.

Some of South Africa’s most successful retailing operations have ploughed this field for some time. Shoprite is a prime example.   Shoprite had the foresight well ahead of their competitors. Shoprite has over 1500 stores, making it Africa’s largest grocery chain and in a prime strategic position not only in South Africa but on the African continent.

Other retailers active in this arena include cell-phone retailers, some of the banks and clothing outlets who trade in areas where there is currently little competition.   Opportunities abound for retailers, especially franchises and stores in fast food, groceries, fashion, mobile, electronics, financial services, furniture and hardware.

Secondary Market shoppers are brand conscious, no-name knock-offs don’t impress. Those in the market encourage interaction with the community, becoming involved in community life is essential. One must find ways to of make goods and services relevant and be seen to be socially active and responsible.

Retail in South Africa’s rural areas or “emerging economic areas” is growing and this success is evident in the retail sales and trading densities in these centres. Statistics show that the last decade has seen a significant increase in the number of retail centres being developed in townships and rural areas in South Africa.

“Townships and rural areas in SA have emerged as a new market for national retailers as we see an upward movement amongst township communities in terms of expendable income. This progressive movement has resulted in a considerable increase in shopping mall development in these previously untapped areas.” Said Marc Edwards of Spire to Cyberprop recently.

Edwards goes on to advise partnering with experts in the field; to appoint strong community based centre managers; to stay close to the community and to ensure the centre is valued; to ensure public transport is available to shoppers; to sponsor community events; to cater for bulk buying and above all carefully research what the needs of the community are.

“Rural areas offer a real cash economy and well marketed tenants who have done their homework will be successful,” concludes Edwards.

 

 

A Darker Reason Why SA’n Business is Moving into Africa?

Reports abound of more and more South African companies doing business in Africa, but why are they not investing that money locally, are there challenges to making development work locally? Looking back over the last few quarters some disturbing stories have emerged.

It can’t be a good sign when you hear the news that a company like Resilient is looking elsewhere to do business.

Des De Beer (courtesy FM)

Johannesburg-based real-estate investment company Resilient, which has a local market capitalization of 11 billion Rand is looking to Nigeria to expand its business. This on its own is not a worry since many SA firms are expanding into Africa. However it’s the stated reasons and comments from its executive that raise some eyebrows.

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.

Unlike South Africa, is the implication, Resilient believes there is a sincere intention in Nigeria to see the country raised up and that officials are largely positive facilitators of the investment process.

Another big player in the industry, Redefine, the second largest listed SA property loan stock company by market cap on the JSE, with assets exceeding R37bn, claims to be hampered by red tape.

The value of the group’s properties declined by 1.7% in the review period while the South African portfolio valuation increased by R260million. Red tape involving local authorities and other government departments are holding back developments in rural areas.

Redefine’s CEO Marc Wainer

Redefine’s CEO Marc Wainer announced last year that Redefine intended to launch a shopping centre of between 20 000m² and 30 000m² in a rural area which could create between 4 000 and 5 000 jobs. This includes cleaners, security guards and other workers needed by retailers.

However, Wainer said instead of the authorities welcoming these developments, processes are being frustrated by officials wanting their palms greased before setting the ball rolling.

The Redefine head said retailers are keen to enter into rural areas with a growing segment of the market’s buying power increasing in terms of social grants, but are now rather opting for Africa. Wainer cited a recent announcement by Liberty Properties to opt for its new growth in Zambia. “It’s easier to do business in Africa than South Africa,”  Wainer told reporters. He added that money being spent offshore should be spent locally, but conditions frustrate this.

In an interview with CitiBusiness  Wainer lashed out at government, criticising the administrative practices of local authorities. At the time he added Redefine was not going to invest in areas where bribes were expected, citing the former Hammanskraal as an example.

But this doesn’t mean everything’s rosy in Africa either, doing business where local authorities are concerned can be a red tape head ache for developers in general. By way of example consider Steven Singleton’s  story.

Steven Singleton wrote to the Daily Maverick about his struggle in setting up a Private hospital in Zambia where he was frustrated at every turn by Zambia’s top banker and business mogul Rajan Mahtani: “Business in Zambia is very much like this and magnates such as Mahtani make sure it stays that way and he retains control.

In my case I offered him what I considered to be “a project on a plate” and, instead of rewarding the provider, he not only took the project, but the plate as well. Why? Because he could, and there was no recourse to be had.

This is all too often the nature of doing solo business in Africa. Powerful and politically connected parties are able to move with relative impunity as long as their alliances are intact or until a change of regime shifts the balance of their power base.”

Although not the same situation, the dynamics are similarly reported when trying to do business involving local authorities in South Africa it seems.  Whether this is an African challenge or a South African challenge, developers have their work cut out for them as they try to invest and develop under

Cement Property’s Gauge of the Future

PPC Cement

So you may have heard the old adage: “When they’re a’ pouring cement, property prices are a’ rising.”  It’s not rocket science – for a gauge on future of the property market, find out what’s happening in the sloshy world of cement.

The latest news on this front is that of South Africa’s Pretoria Portland Cement Company (PPC ) planning to build a cement factory in Zimbabwe. PPC has been upfront that it plans to increase its proportion of sales outside South Africa to a least 40%. In November PPC received its Zimbabwean indigenisation certificate which opened the way for the firm to expand its operations there.

A former executive told a local newspaper that the project could cost as much as R1.7bn. The same source said that PPC had its sights set on four new opportunities in Africa. The company already has two plants in Zimbabwe with the intention of building another in Mashonaland province.

This comes in the wake of PPC acquiring a 47% Habesha Cement Share Company (HCSCo) of Ethiopia 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 that region. Dangote Cement of Nigeria and Athi River Mining of Kenya are also competing for market share. Dangote Industries Limited (DIL), formally increased its stake in South Africa’s Sephaku Cement (Pty) Limited, on PPC doorstep, from 19.76 per cent to 64 per cent. The transaction, which comprised a R779 million investment into Sephaku Cement by Dangote, was the largest ever foreign direct investment (FDI) by an African company into South Africa.

Coming back to the cement gauge, some would suggest that PPC is looking for greener pastures since South Africa is said to have a glut of buildings in the shadow of the building boom that ended in 2010.  And yet French based African cement giant Lafarge Group with operations in 11 African countries, is making its presence felt in South Africa. The Group’s subsidiary, Lafarge South Africa was a Gold Sponsor of the Advances in Cement and Concrete Technology in Africa (ACCTA) conference on 28-30 January 2013 at Emperor’s Palace, Johannesburg. Apart from the heavy sponsorship, the company contributed two important technical papers showing a commitment to its presence in the subcontinent. Lafarge’s confidence in Africa reflects its global strategy of investing in emerging countries.

Revisiting PPC’s position: it paid $69million for control of Rwanda’s only cement maker in December. The company plans to spend $300million expanding into the other parts of the continent. The company announced that the first quarter of the financial year saw mild growth in South African, Botswana and Zimbabwean cement volumes. The company admits that there are limited options on major infrastructure projects in South Africa but there is sufficient increase in demand to be cautiously optimistic about Southern Africa.

Property investment, it seems, is like standing on wet cement; the longer you stay, the harder it is to leave, and you can never go without leaving your footprints behind.

Durban’s Center of Gravity Adjusts Northward

Durban continues to see a significant move North for its commercial and industrial developments. This poses the question, is this at the expense of the Durban South Basin?

Some might say Umhlanga is to Durban what Sandton is to Johannesburg as it becomes a commercial pivot to the industrial exodus north of the city.  Placing congestion in the South Durban industrial basin under the cons column and King Shaka International Airport under the pros column it’s not difficult to see why industry is  mushrooming in areas north of the city like Springfield Park, Riverhorse Valley, Briardene and Mt Edgecomb.

The significant labour pools of Kwa Mashu and Phoenix also add value to the mix, not to mention what kind of future the new Conubria development holds for labour. Another draw card is the proximity of the R102, N2 and the N3. Industry needs to be close to robust transportation networks. Throw in the new airport and the picture is complete.

Heading North has made sense for some time given the availability of large parcels of land. Such land is not available in the South.

South Durban is not helping itself as infrastructure is neglected, services falter and environmental quality declines. Clearly some vision is has been required with regards to urban management and wise forethought needed in future town planning.

Andrew Layman, CEO of the Durban Chamber of Commerce has been at pains to point out that the move North was not necessarily a move from South Durban. He pointed out that the type of industry moving North is that which favours the airport and is not reliant on the port.

There has been much commentary on the future of the South Durban Basin. One can’t help but find the optimism about the area infectious. The advent of the new cruise terminal is expected to add greater activity to the port in particular and the area in general.

Then there’s Transnet’s new R75 billion dig-out port, to be built at the old Durban International Airport site. Ethekwini aims to rezone Clairwood from residential to industrial to create a back-of-port logistics hub that will complement the dig-out port. Residents fear that they will be forcibly removed, and held mass protests last year, while the city aims to pacify their fears and reassure them that this will not happen. A series of public engagements was held in 2012 and will continue intensively this year to gauge the views of affected community members who reside in and around Clairwood.

It seems clear that although there is a commercial and industrial shift North. The future plans for the South could see twin hubs developing in the city based more on function than history.

Redefine Acquires Earls Court Holiday Inn Express

Holiday Inn Express

Diversified income focused property firm, Redefine, announces that it has through its 71% held subsidiary Redefine Hotel Holdings Limited, acquired  60% of the issued shares in BNRI Earls Court Limited from Camden Lock and Earls Court LLP for the purchase price of GBPounds8.7 million. The purchase price plus transaction costs of £0.4 million reflected a net initial yield of 7.5% and was funded by the Company and its co-investors in RHH on a pro-rata basis.

BNRI owns the 150 bedroom Holiday Inn Express Hotel in Earls Court, London valued at BPounds27.0 million.

This follows on the heels of Redefine’s acquisition of the Caversham Hotel Thames Side Promenade Reading and the leasehold on which the hotel was situated for a purchase price of GBP12.75 million. Redefine Hotels Reading Limited concluded an agreement with Pedersen (UK) Limited.

Holiday Inn Express is well located close to the Earls Court Exhibition Centre and Arena and the Olympia Exhibition Centre. Both these facilities are all-year-round honey pots for local and international tourists requiring the type of accommodation the Holiday Inn Express offers.

The area is earmarked for large-scale redevelopment including several thousand new homes and a potential new International Convention Centre. This process is expected to take several years and is likely to boost the occupancy of the Hotel during the development phase, not to mention leaving the hotel well placed for a future boom expected upon completion.

The hotel is held under freehold title and is subject to a franchise agreement with IHG Hotels Limited until 2023. There are two meeting rooms for up to 50 delegates, a restaurant/bar and 16 car parking spaces. The Hotel is in excellent condition and has been well maintained.

The Hotel formed part of the Splendid Hotel Portfolio comprising seven hotels that were originally co-owned by Bashir Nathoo, five of which were acquired by the Group in December 2010.

Redefine International Hotels Limited has been involved in the operational management of the Hotel since December 2010 and therefore has a good working knowledge of the business prior to the Group’s investment. The Hotel will complement the Group’s existing portfolio of six high quality hotels.

Mike Walters of Redefine told a press conference: “During our recent £127.5 million capital raise we stated that we had identified a strong pipeline of acquisition opportunities, and this transaction represents the first of these. The limited service hotel sector continues to thrive in pockets of London and, together with our in-depth knowledge of the performance of this particular hotel and our belief in the potential of this sector, we believe this transaction illustrates a compelling investment opportunity which will deliver a high quality income to our investors.”

Lodging REITs Looking at a Healthy 2013

Shangri-la Hotel

The US lodging sector is looking more and more attractive to investors in 2013. The sector has emerged as one of the strongest players in the equity REIT markets, with sector returns of 9.09% year-to-date through January 29th. In comparison to the equity REIT market, whose overall return was 5.30% over the same period, 2013 is looking promising indeed.

Market watchers Seeking Alpha have commented that the hotel REIT sector as a whole is drastically undervalued relative to other REITs, pointing out that the sector trades at an FFO multiple of 11.7, as compared to the SNL Equity REIT Index, which on average, trades at a multiple of 15.1.

You may ask, why the discount? This has been blamed on everything from: an inactive congress resulting in low Washington D.C. hotel room occupancy, to Hurricane Sandy and reduced travel from Europe to East Coast hotels.

In 2012, Smith Travel Research reported 6.8% RevPAR (revenue per available room) grew to $65.17, a growth that was driven by a 4.2% gain in ADR (average daily rate) and 2.5% increase in occupancy. Despite this positive upturn in 2012, factors like the fiscal cliff, international economic concerns, and Hurricane Sandy took a toll on the travel business. But by the end of December, the lodging sector was comprised of 17 REITS with total market capitalization of $30.3 billion, an increase of almost 25% from $24.3 billion in 2011.

Looking ahead, an updated lodging forecast released last month by Price Waterhouse Coopers US, anticipates stronger RevPAR recovery in 2013, compared to the previous outlook. Lodging demand growth, which had eased in the third quarter of 2012 on a seasonally adjusted basis, gained more strength than expected in the fourth quarter.

Regardless of near-term economic challenges, lodging demand and pricing, are expected to remain on positive trajectories.  PWC expects lodging demand in 2013 to increase 1.8 per cent, which combined with still restrained supply growth of 0.8 per cent, is anticipated to boost occupancy levels to 62.0 per cent, the highest since 2007. Hotels in the higher-priced segments are expected to experience the strongest gains. Hotels in the lower-priced segments have not experienced as solid a recovery in occupancy, but are still expected to realize increased room rates as demand gradually strengthens.

Supply growth is expected to accelerate in 2013; however, by historical standards, supply will stay low and will not negatively effect market performance. The STR/McGraw Hill Construction Dodge Pipeline Report indicates that about 87,000 new rooms will be added in 2013, representing about a 1% increase in supply. Most of the new development will involve properties in the upscale and upper midscale segments. While not large in numbers, upper upscale openings are also expected to increase pointedly.

The improvement in the lodging sector in 2013 is expected to be a result of ADR rather than occupancy. U.S. residents and business will increase spending on travel as the economy continues to strengthen in 2013. International tourism to the Unites States is expected to grow, as regions like Hawaii and the West Coast are expected to experience an increase in tourism from Asia.

Prospects for 2013 for the lodging sector are positive as the US economy continues to firm up. If domestic or international markets suffer significant economic setbacks, the performance of the lodging sector will be affected.

REIT commentators RETI Café sum it up thus: “Lodging sector REITs will benefit from the market’s improving fundamentals. With a low interest rate environment, and large dividend pay-outs, lodging sector REITs have become particularly attractive in 2013.”

 

 

 

River Horse Valley Estate, a Durban Success Story

River Horse Valley

A pristine valley stocked with Hippos, Elephants and Waterbuck descended down the slippery slope of pollution and neglect as ‘civilization’ crept north into what is now Riverhorse Valley. Today some of that environment is being restored as a precondition to the establishment of what has become The Riverhorse Business Estate.

Investors are patting themselves on the back as River Horse Business Estate North of Durban appreciates handsomely in the midst of a slow economy.

The Estate is a Joint Venture between the eThekwini Municipality and Tongaat Hulett, the first thoughts of which go back to 1994. Now over 150 businesses are established in the area.  Today the 300 hectares that make up the unfenced Estate consist of 160 hectares of developed sites and 142 hectare to reclaiming green spaces.

Strategic Planning Services, responsible for a recent report commenting on the green aspects of the Estate, proclaimed that the development is without national parallel.

Trevor Pierce Jones of management company SID Urban Management (PTY)Ltd, reports that 17 000 people are employed across the estate with a permanent workforce estimated at 12 629 of which 4249 are new jobs augmented by a contract work force of over 4400.

The Estate is contributing over R80 million in rates annually, far above previous expectations. 61 per cent of the 90 per cent of companies interviewed in the 2012 socio-economic impact assessment, said they had moved to the estate from else where in the city, 22 per cent suggesting they had outgrown their existing premises, 7 per cent are new businesses.

R200 million was spent on establishing and serving the estate, two thirds of which was from eThekini. The 2012 valuations roll values the properties at and estimated R3.2Billion.

Spin off developments include the upgraded Queen Nandi Drive, the forthcoming rehabilitation of 41 hectares of wetland, a R750 000 indigenous tree planting programme and the addressing of public transport issues.

The bulk of the development consisted of the creation and cutting of developable platforms for the various Erven and careful consideration and survey was conducted to ensure that all sites were above the 1 in 100 year flood plain level.

Infrastructure developments include the construction of 2 new bridges over the N2; the construction of 2 new bridges over the Umhlangane River; the creation of 7 new roads and the diverting of the Umhlangane River.

The

Riverhorse Valley Business Estate

Management Association now administers an area of 304 hectares comprising: developable industrial, commercial and mixed use activities – 150 hectares; internal road reserves – 13 hectares; Umhlangane river and flood plain – 78 hectares; Huletts Bush – 37 hectares. The above areas exclude the N2 freeway, Rail reserve, Total petro-ports, Queen Nandi Drive and Newlands East Drive.

To quote one example of happy investors, Shree Property Holdings brothers Pavan and Mayur Shree say: “As leaders in Grade A warehousing, we simply couldn’t ignore the opportunity. We bought three prime properties – two in the front of Builders Warehouse and the other next to the Unilever site, we began developing immediately.” One of these sites was snapped up in an adroit sale while the others were subdivided and leased off relatively quickly.

 

 

 

Datacentre REITs Take Off

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 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 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.”

Basel3 – As Basel 3 Relaxes will Property Funds Grow?

If 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

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

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.

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

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

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?

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.

Although 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 consumes 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

South 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

2013 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

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

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

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

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.

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.

 

 

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.

The 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.

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

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

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?

It’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 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 restaurant (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.

But 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.

So 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

The 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.

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

In 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.

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.

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 43^rd place to 32^nd 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.

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.

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.

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.

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.

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.

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!

It Takes Two to Tango: Who’s dancing with corrupt public works officials?

So Public Works Minister Thulas Nxesi is hard at work stopping the haemorrhaging of funds and the corruption of officials in his floundering department. The dysfunctionality is rife and the mismanagement is astonishing. Corruption is under every leaf. But doesn’t it take two to tango? Who’s fingering private enterprise?

 

As anyone will recall from sibling rivalry that a game of “he did it-she did it” achieves little. But shouldn’t we be looking into who the protagonists are in the Public Works corruption saga? Apart from the guilty government officials, there’s someone else playing a significant role in this debacle.

 

Looking outside of this particular saga for a moment and at the infamous Arms Deal, lots of accusations and uninvestigated claims abound about government officials as far up as our own President. All worthy of answers and unbiased investigation – may truth prevail. Call it reactionary if you like or perhaps it’s a distraction but is it possible we could learn some of the truth by examining those who actually offered the bribes: those squeaky clean Europeans. After all there’s a stereo-type to maintain: isn’t corruption an African problem not a European problem?

 

Back to the South African government department of Public Works, the focus of attention is squarely on the officials. This is understandable, good and right. But there is a nameless faceless mass out there that has to be doing the corrupting, offering the bribes and greasing the wheels. Roux Shabangu would be an exception since he hasn’t managed to escape the glare of public media attention.

 

This is not to suggest yet another Third Force conspiracy either and one is not unaware that the corrupt historically have drawn more attention than the corruptor. But this should not negate zeal for the exposure of both parties in corruption, for the sake of weeding it out.

 

What now of the 22 irregular leases in Jo’burg involving payments of R64m, currently under investigation by the Special Investigating Unit? Let’s hope that not just the crooked officials are exposed but their private enterprise partners as well.

 

Nxesi is reported to have said: “We have instructed our lawyers to approach the high court to nullify these irregular lease agreements and institute action against whoever unduly benefited.” This is a start.

 

Public Works manages 1 277 leases on behalf of the SAPS. A task team of SAPS and Public Works officials are now investigating those too. Let’s see everyone come out into the light when those rocks are turned over. No protection for tango partners.

 

Which bring us to consider one of the consequences in the case of crooked leases: the inflated rates of the leases. Mr Nxesi said fraudulent and irregular leases, where the state paid exorbitant prices for leasing buildings, were so numerous that the property market in some areas had been permanently distorted! The knock on effect to the property industry is obvious.

 

Consider this next time you tut tut those wicked, naughty corrupt government officials. Someone from private enterprise is dancing the tango too. Before they shrink back into the shadows ask the question who’s doing the corrupting and how come they’re getting a free pass?

 

Ruby Tuesday, Backleasing and Owning Your Own Real Estate

The well-worn pages on lease-verses-buy in business textbooks makes much of a meal of equipment and motor vehicles but leaves glaringly absent the application to real estate.  Perhaps the omission is the result of the specialised nature of real estate, which makes it difficult to provide simple illustration of principles.  This brings us to Ruby Tuesday. Huh?

 

Depending on your generation or where you live you may know that Ruby Tuesday was a song recorded by The Rolling Stones in 1966. The song, was a number-one hit in the United States and reached number three in the United Kingdom and five in South Africa.

 

But Ruby Tuesday is also an American multinational restaurant chain, named after the Rolling Stones hit,  that owns  and franchises the eponymous Ruby Tuesday eateries. While the name and concept of Ruby Tuesday was founded in 1972, the corporation was formed in 1996 as a reincorporation of Morrison Restaurants Inc. The centre of operations is in Maryville, Tennessee, and from there 800 sites are operated worldwide.

 

Going back a few years, analysts were asking if Ruby Tuesdays was the Canary in the Coal Mine with regards to the World Financial Crisis. Facing default on its loans back in 2008 the restaurant chain looked set to fall off its perch.  Then began a programme of sale leasebacks which arguably saved the day. So what about sale leasebacks? Should companies  own their own real estate to sell and lease back in the first place?

 

Many companies have enormous sums tied up in commercial real estate that it owns and uses for its business, whether that’s warehouses, retail stores, head office or restaurants. In the US, department stores like Dillards and Sears own their own premises. Many restaurant chains like Ruby Tuesdays and Cracker Barrel own their own outlets. Zynga , the online gaming company recently acquired their headquarters building in San Francisco for over $200million. Google bought its new headquarters in New York in 2011 for nearly $2 billion. Microsoft and Wal-Mart also own a lot of their own property; however they are also examples of companies that have made much use of the sale leaseback.

 

Commercial real estate is considered a capital intensive asset and includes, among others: office buildings, retail centres and industrial warehouses. The properties are subject to a lease contract that generally has a base rent, additional ‘rent’ covering the property’s operating costs like rates and maintenance, a term of three to ten years with the option for renewal. The base rental rate varies depending on the credit of the tenant and the location and age of the building.

 

There is an argument that it doesn’t make economic and investment sense for a public operating company to sink large amounts of capital in its own real estate. In fact the argument is that a company should not own, or be in the business of leasing out its own real estate. Companies and in particular public companies should not be tying up capital in commercial real estate. Also, owning real estate may be considered a distraction from what should be the main focus of the business.

 

In fact since the advent of the World Financial Crisis, the companies that have invested in commercial real estate are being encouraged to sell these assets and do a sale/leaseback unless the assets are of a ‘strategic investment value.’ The argument is that capital tied up in real estate should be reinvested into the company’s core business where the rate of return is greater than in a real estate investment. And there lies the rub: The expected return from investing in an operating business is expected to be higher than a real estate investment.

 

So if what the investment firms’ have locked up in property isn’t producing a return other than that which is being saved on rent by owning the property, what is there to show for it? The amount saved is small in comparison to the lost capital investment.  It could be concluded then that to multiply returns there should be a disposal of real estate assets and a reinvestment of that capital in the business to produce growth.

 

Just a reminder as to what a sale-leaseback is:  a sale leaseback option allows a company to sell its assets and lease them back simultaneously. This can be beneficial for businesses that are in need of an inflow of capital.  Unlike a traditional mortgage, which often finances 70% to 80% of the property value, a sale-leaseback allows a company to get 100% of the value from the real estate.

 

Bringing us back to Ruby Tuesday. Although as a covert strategy, purists may argue that the accumulation of real estate as a “rainy day fund” is a somewhat archaic idea, one can’t help admire in hindsight Ruby Tuesday’s desire to own substantial amount of real estate for their locations as forward thinking.  As a ‘rainy day fund’ the idea is a fly in the ointment of the non-ownership school of thought.

 

Ruby Tuesday has announced plans to acquire Lime Fresh Mexican Grill. It has launched a new television advertising campaign and increased projected annualized cost savings to $40million. The company has also begun implementing its sale leaseback plan to raise $50million through the sale and leaseback of nearly thirty outlets ending the first quarter of 2013. By quarter’s end, the firm completed a sale-leaseback deal on 8 properties, resulting in nearly $18million in gross proceeds.

 

So who’s to say, in the midst of sound financial common sense, which is what one might call the school of thought that would have businesses own as little real estate as possible, we encounter a glaringly perfect example of benefits of having real estate assets like Ruby Tuesday. One point is that Ruby Tuesday may not have been able to dig itself out if it were not for sale leasebacks, a potential solution for many medium to large enterprises to acquire much needed business investment capital.

Then again to quote Ruby Tuesday’s own lyrics from a real estate asset point of view:

Don’t question why she needs to be so free
She’ll tell you it’s the only way to be
She just can’t be chained
To a life where nothing’s gained
And nothing’s lost
At such a cost

Brian Jones & Keith Richards 1967 © ABKCO Music Inc

 

 

Life for Land Lords Becomes a Delicate Balancing Act.

Gone are the days when prospective landlords, commercial or residential, can buy premises, shove in some random tenants and put their feet up as they listen out for the ka-ching of the till in the back ground.

 

Some may argue that it hasn’t been that way for a while, some delight in an end to the days of the Laird and the serfs. So let’s look at a current court case, a proposed new bill and an eight year old Constitutional Court judgement.

 

Currently the case of Maphango and 17 Others v Aengus Lifestyle is before the Gauteng Rental Housing Tribunal after having been before the Constitutional Court. The case involves the Prevention of Illegal Eviction from an Unlawful Occupation of Land Act. It is an act of Parliament which came into effect on June 5, 1998, and which sets out to prevent, among other things, arbitrary evictions.

 

Briefly put: Aengus Lifestyle properties bought a rundown block of flats in Braamfontein with the view to renovating it. This isn’t a slumlord at work here but a legitimate developer. In the process, Aengus has chosen not to renew tenants’ leases as they expire.  This way the building would empty in time, renovating the units as they became empty. It also means that Aengus can charge higher rentals in line with other renovated buildings in the area. This has been a common practice in the renewal movement of inner city Johannesburg and around the world.

 

As it turns out the Constitutional Court handed down judgement on the 13 March 2012 but was a somewhat deflated one. In a majority judgment written by Justice Cameron, the Court found that that the High Court and SCA failed to give adequate weight to the Rental Housing Act and that the landlord’s conduct may have amounted to an “unfair practice”. The Rental Housing Tribunal is empowered to determine whether a landlord committed an unfair practice, and it might accordingly have ruled in the tenants’ favour. The applicants are therefore directed to lodge a complaint with the Gauteng Rental Housing Tribunal before 2 May 2012. On 2 May 2012, the complaint to the Tribunal was filed and we all wait with baited breath as to the outcome.

 

Then there’s the proposed Rental Housing Bill. The public was invited to respond to the re-drafted Rental Housing Bill that was introduced on October 28, 2011, in the National Assembly. Submissions were closed on the April 5, 2012.

 

The bill intends to regulate the relationship between landlords and penurious tenants as well as government.  Of note is the fourth chapter of the bill laying out what is referred to as Rental Housing Tribunals. These are essentially tasked with mediating on matters arising between landlords and tenants. The tribunals will have the jurisdiction in matters relating to: lack of maintenance; exploitive rentals; overcrowding and unacceptable living conditions.

 

The bill will no doubt have to be tested by cases as they surface but it is certain the relationship between landlord and tenant will change considerably.

 

Which brings us to some new attention to a 2004 Constitutional Court judgement. Many a landlord’s heart’s sank on the day that Mkontwana v Nelson Mandela Municipality made its movement through the Constitutional Court back in 2004. The knock-on effect for both residential and commercial landlords was and is far reaching.

 

Jason Lee of Rawson Property group has, among others, expressed a need to review “the situation” “especially in the current scenario where tenants are increasingly finding it difficult to pay both their rentals and their utilities accounts.” He announces on the Rawson Website.

 

For clarity: the outcome of the aforementioned case was that the landlord became responsible for all municipality service debts incurred by the tenant. The burden now rests with landlords for all water and electricity utilities run up by the occupant.

 

On the other hand landlords are not permitted to withhold water and electricity utilities from defaulting tenants. Sewage services and rubbish removal also remain in place regardless of what is owed.

 

The question raised is whether this burden on landlords and banks is too much to bear. The risk with “tenants from hell” enormous.  In the event of selling a property a rates clearance certificate is mandatory before a transfer is processed.

 

Given the current law the best landlords can do is to work very hard on background checks, demanding lengthy histories from tenants with impeccable references. In addition to this tenants will have to come up with several months in utilities and rental deposits.

 

How this will be “reviewed” as Lee puts it, is another matter. Watch this space.

 

There’s no doubt that being and landlord these days requires a very skilled tight-rope walk, delicately executed. Oh and don’t forget the net.

 

 

Offshore Property Not for the FaintHearted

Timing is everything, and if it isn’t then learning from history is. Continuing to make the same offshore property investment bungles could be the result of a combination of emotional frustration, Afro-pessimism and a Moby Dick like obsession with the Rand.

In 1997 the South African government allowed its citizens to take R200 000 per capita per annum to invest offshore. One may argue that investors practically ran to the offshore hills from an outperformed JSE and evaporating Rand.  South African investors stood clutching their modest handful of Rands and looked up in wonder at a booming Wall Street. By 2001 the rand had fallen to R13.50 to the Dollar.

Who would believe that ten years later many countries would be on the verge of bankruptcy and that people would be grumbling about the “Strong Rand” and that the South African Equity market had outperformed most other markets over the same period?

But those in this game for the long haul will remind us that when all seems lost, it’s time to role up  sleeves and capitalise. Back in 2001 when fear gripped investors it was actually the right time to buy into SA equities. When the rand collapsed and afropessimism crept in, investors bought Dollars and Euros expensively and sold out of arguably undervalued markets and bought into markets trading at large premiums.

Looking back ten years, comparisons have been made to a R100 investment in the JSE all-share index at the end of 2001 that would have been worth about R400 by the end of June this year, versus only around R94 if invested in the MSCI world index over the same period. The main US equity index, the S&P500, is today still roughly 10% below its peak in 2000 in rand terms.  Emotions have been the main driver of the investments.

Says Investec Asset Management director Jeremy Gardiner  to the Financial Mail August 2011, Many SA investors, having watched with horror over the past 10 years as the rand doubled in value and the JSE delivered enormous returns, are again considering switching at the wrong time — this time out of developed markets and into SA equities and the rand. “Yet again, this decision is made on the basis of emotional frustration rather than recognising that both SA equities and the rand are now relatively overvalued.”

But a steady hand is required here since the strong performance of the SA equity market seems set to continue.  Offshore investment in general equities may well have dried up recently, it seems the JSE’s R125bn listed property sector is becoming a hot commodity among overseas investors. Big institutions putting down their names include Principle Global Investors, Black Rock and State Street.

On the receiving end GrowthPoint properties, has seen its overseas shareholding jump from 3% to 11% over the past year. Redefine – SA’s second-biggest listed property counter, with a market cap of R20.3bn – doubled its offshore shareholding from 4% to 8% in the same period. “Global investors are now taking note of the fact South African-listed property offers far more attractive returns – total returns of close to 30% last year – than other global real estate markets.” Says Growthpoint executive director Estienne de Klerk.

There is expectation of more overseas funds showing up locally over the next 12 months. Names bandied about include Hyprop Investments,  as well as whatever will materialise from the merger between Capital Property Fund and Pangbourne Properties, also whatever surfaces from the potential merger between Acucap Properties  and Sycom Property Fund and then there’s the  listing of Old Mutual’s R12bn property portfolio.

Macquarie First South Securities property analyst Leon Allison spoke to Finance Week recently and said that although returns over the next decade will be more subdued than has been the case over the past 10 years, current positive structural changes will make the sector more investor-friendly.

Bringing us back to offshore options. The rand’s strength favours taking money offshore. But the logic for offshore investment goes beyond any potential weakening of the rand. There is much to be said for the need for South Africans to diversify their assets. But there are more South Africans who have in the past got their offshore investment timing wrong. 2001 was the prime example, when a historic devaluing of the rand alarmed investors into the arms of foreign markets. At the peak of the rush, the second quarter 2001, 88% of net unit trust inflows went into offshore funds.

Now according to Marius Fenwick, head of the financial services arm of accountants Mazars:  “Now is the opportune time to invest offshore as the strength of the rand makes offshore investment attractive. Instead, offshore diversification should be used to hedge future rand depreciation and diversify through access to large global companies.” So here we go again…

But we know already this isn’t all about the rand. The great Bismark said: “Some people learn from their mistakes, that’s good. But isn’t it better to learn from other people’s mistakes?” Aren’t the underperforming overseas markets just waiting for South African investors? Rand or no Rand variance?

What are the options? Who are the players in offshore property investment?

First of all there’s Growthpoint that bought up a Sydney listed subsidiary applying its winning formula in Australia. Then there’s Emira, which has just put R117m into Growthpoint Australia, in their case they claim the rand had zero to do with their investment move. Emira has a 6.4% stake in Growthpoint’s Australian presence.

International Property Solutions markets UK and Australian residential property to South African investors. CEO Scott Picken was quoted as saying that South Africans wait until the rand is collapsing, panic and throw their money into offshore apartments as it hits bottom, he says. “Most investors have lost money offshore in this decade.”

Financial correspondent Scott Picken writes that comparative data shows that South Africans would have made much more money over 10 years measured in sterling by buying an average house in Johannesburg in 1997 than buying one in London at the same time. Only time will tell if the shoe is now on the other foot.

Other off shore institutional investors include Capital Shopping Centres. British Capital, run through Barnard Jacobs Mellet and Stanlib which has offshore unit trusts. Investec Property Investments has unlisted funds buying property in Europe and the US. There is also Catalyst which has an unlisted fund of global listed property funds.  Redefine is working through its London-listed Redefine International. Resilient has New Europe Property Investments (Nepi), which mainly owns shopping centres in Romania. All top performers.

Other choices in property include these very few funds which have actually lost money. Nedgroup Global Cautious (down 8,5%); Sanlam Investment Management Global Best Ideas (down 2,3%) a long term performer though; the Absa International fund of funds (down 15,8%)

Whether it’s  a strong Rand or the need to diversify one’s portfolio, these may be the times that offshore property funds offer the South African investor a long term strategy again, last made available ten years ago. Whatever the case this isn’t the time to think with the knee-jerk of emotion or a political bias.

Onshoring in the USA with notes for South Africa

Onshoring is seeing a resurgence in manufacturing in the United States. The knock on effect for industrial and commercial real estate is debatable. What lessons, if any, are there for the South African market?

 

Firms like Ford, Carlisle Tire and Wheel Company, Otis Elevators, General Electric and Whirlpool have relocated some jobs back to the U.S. or opted to upgrade existing U.S. plants rather than resort to off-shore operations. This is in the wake of the World Financial Crisis.

 

There is some political incentive; it may be the patriotic thing to keep manufacturing plants at home. But in the end it’s the big buck that cracks the whip.  In June 2010 Master Lock a world player in the manufacture of security products, brought over one hundred jobs home that had been previously off-shored.

 

US President Barak Obama used the ‘on-shoring’ of the Master Lock factory in Milwaukee to highlight the Democrats Blueprint for an America Built to Last. The ‘blueprint’ is essentially an incentive scheme for the on-going creation of manufacturing jobs in the U.S. Coupled with this is the removal of deductions for offshoring jobs overseas. The political message is clear.

 

Heavy equipment manufacturer Caterpillar is opening a giant facility in Victoria, Texas, in the process of shifting production from Japan back to the U.S. In February, the firm announced it would also shutter a 62-year-old plant in London, Ontario – Canada that makes locomotives and move production to Muncie, Indiana.  Jumping on the bandwagon is Japanese carmaker Honda which is investing $98 million in its largest vehicle engine plant in Anna, Ohio. A significant number of firms have moved some jobs back to the U.S. or opted to upgrade U.S. plants rather than resort to off-shore operations. So there is significant movement on the manufacturing landscape.

 

In some cases, firms are actually reopening mothballed factories. In others, firms surveying the landscape have opted to open plants in states within the U.S. with the lowest labour costs and unionization rates. Something South African corporates wouldn’t be able relate to given the uniformity of unionisation across the country’s provinces.

 

In South Africa labour remains arguably at acceptable levels in the manufacturing industry – for example we aren’t seeing PE’s motor manufacturing plants moving to Botswana due to unmanageable wage demands. South Africa’s Chemicals and the Agriprocessing industries are geographically anchored and aren’t able to be moved offshore. So labour in those industries is unlikely to fear offshoring any time soon.

 

Onshoring in the US though has contributed to a steady revival in manufacturing jobs within the U.S. since mid-2010. Employment in the sector is expanding at an annual pace of approximately two per cent. But manufacturing as a percentage of the U.S. workforce will continue to fair lower down the scale since higher productivity is one of the draw cards for Onshoring.

 

Higher productivity means fewer workers producing the same amount of goods. Without appearing cynical, it must be said that this would not bode well with labour in South Africa since it would seem more desirable to have greater numbers employed to produce the same amount of goods for the sake of employment figures. But since there is no such incentive in South Africa onshoring is not a relevant dynamic in the economy for that reason. There is also the migrant labour dynamic to consider.

But there are lessons to be learned from ‘the equation’ used by U.S. corporates when it comes to deciding on the location of new factories. Factors weighed include: shipping costs and real estate; infrastructure and supply chain competence; cost, quality and obtainability of labour; proximity to suppliers and customers; taxes and incentives.

 

Previously, cheap labour and shipping costs clinched it for China and other emerging countries. However the labour market in those same countries is not putting up with the pay and conditions heretofore endured. Labour costs in China for example have risen on average almost 20 per cent per year over recent years. The result is that there’s a higher premium to pay. Similarly volatile oil prices are being felt on the transportation leg. Some estimates have transportation rising 20 to 25 per cent in the next three years!

 

But back to labour, in the U.S. over the previous four decades, productivity has hit the roof. Output per worker in the manufacturing sector has grown 136 per cent since 1987. According to William Strauss, senior economist at the Federal Reserve Bank of Chicago, what it took 1,000 workers to do in 1960 requires only 184 workers today. In 2005 goods produced in China and shipped to the U.S. were 22 per cent cheaper than products made in the United States. By the end of 2008, the price gap had dropped to just 5.5 per cent.

 

Despite productivity gains, the manufacturing sector has stopped losing jobs, instead there have been gains. Hitting rock bottom at approximately 11.5 million workers in January of 2010, the U.S. market has added 421,000 new manufacturing jobs. The sector is growing at an average annual rate of about two per cent, the fastest rate of expansion since the mid-1990s.

 

A lesson for South Africa is that U.S. analysts believe that production never really disappeared. But there are factors that are strengthening it, including a lowering of wages for manufacturing employees. Real hourly wages for U.S. manufacturing employees have remained flat since 1970. In 2000 average wages were $14.35 an hour in 1970 and $14.63 in 2009, according to the U.S.’s Bureau of Labour Statistics. Would S.A. unions put up with that?  Could S.A. workers settle for less for the sake of keeping their jobs and still increase productivity?

 

Then there’s the issue of what is referred to in the U.S. as ‘right-to-work’. This legislation prohibits agreements between unions and employers to create “closed shops” and limits auto-payment of union dues. Closed shops are workplaces where every employee must belong to the union as a condition of employment. It could be argued that in S.A. the social/political pressure makes it impossible for such legislation to be considered or even at ground level, enacted.

 

Currently, 23 U.S. states have some sort of right-to-work laws in place and that’s where the plants are being reopened or built.

 

The difference in quality of U.S. labour is a factor too. “Many of the manufacturers moving back from Asia and India say the quality control there is atrocious,” says K.C. Conway, executive managing director of market analytics with Colliers International. “We have quality control, a well-trained work force. It’s much more robust here than in Asia.” South African manufacturing labour quality seems to vary in reputation across the board but excels in the automotive and agriprocessing industries for example. There doesn’t seem much to tempt local manufacturers to move to Lesotho or Swaziland for example since workers from those and other Southern African countries populate our workforce anyway.

 

Both the U.S.’s President Obama and S.A.’s President Zuma have spoken much about the improvement of infrastructure. In President Zuma’s case there has been large allocations to infrastructural improvement in this year’s budget. Theoretically this should reduce the cost of moving goods around the country. Obama has proposed $476 billion through 2018 on highways, bridges and mass transit projects for example.

 

In overview one school of thought is that U.S. manufacturing has never really gone away. The U.S. produced 18.2 per cent of all goods globally in 2010, of course it used to be so much more, and China has surpassed the U.S.  2010 marked the first year since the late 1800s in which the U.S. was not the largest producer. China, with $1.92 trillion in manufacturing output has taken the title.

 

Along these lines, one is pointed to the fact that although it’s true that the majority of consumer goods are produced in China, the U.S. specialises in heavy machinery and goods that are the product of highly-skilled labour. Automobiles, airplanes, aerospace components and pharmaceuticals are all divisions where the U.S. retains a hefty share of world production.

 

In the final analysis the assumption we may make is that the U.S. commercial real estate industry should be strengthened by on-shoring though not as dramatically as we may be tempted to conclude. The total industrial market vacancy rate stood at 9.5 per cent at the end of the fourth quarter of 2011. It declined in every quarter of 2011 and is down a full percentage point from its recessionary peak of 10.5 per cent at the beginning of 2010. For flex space, vacancies are a bit higher—12.6 per cent at the end of the fourth quarter—but there too the rate has declined from a peak of around 14 per cent in 2010. Manufacturing space tends to be very specialized and often manufacturing companies build their own buildings and they don’t need to buy the space that existed previously. The exceptions to this might be smaller secondary and tertiary suppliers that support larger manufacturers. Those kinds of firms tend to locate in flex space.

 

Although South Africa doesn’t find itself in an on-shoring situation the lessons above remain for us to observe. Manufacturing activity in South Africa rose to a two-year high last quarter, fanning expectations that growth in the economy’s second-biggest sector is gaining impetus. This surpassed those recorded among South Africa’s main trade partners during the same quarter. Manufacturing accounts for 15% of South Africa’s economic output and 13% of formal employment. In the fourth quarter of last year, it recovered from a recession in the previous two quarters, expanding by 4,2%, according to official data. The knock on effect on industrial and commercial property is presumed and likely but can be unreliable and inaccurate to monitor.

Stuttafords and Granny’s Old Piano

Johannesburg’s Stuttafords building is like granny’s piano. You inherited something that meant a great deal to somebody else and still means a lot to many others, but it may not mean anything if the history doesn’t do it for you.

 

Granny’s piano is probably out of tune and the felt hammers inside are worn, not to mention the state of those keys. To resell it would put very little in your pocket. However to restore it and make it available to the next generation could have enormous value all round.

 

Such is the situation that some of Johannesburg’s grand old buildings find themselves. The Ansteys building is a perfect example of a successful transformation of use from one generation to the next; a tired pink elephant transformed into a bright art deco mixed-use block for the stylish set.

 

Stuttafords, though is not vast the department store chain of old. A place where your mum dragged you through departments with obscure names like haberdashery, lingerie and Manchester, hopefully to reward you with a milkshake and assorted sandwiches at the self-service tea-room upstairs.  Stuttafords today is an up market, sleeked down version of its old world self. But an iconic reminder of those Grande old stores that used to dot the South African landscape remains.

 

The building fell under the Auction Alliance hammer last year. Stuttafords was established in Cape Town in 1857, and opened its first Johannesburg Store, the one on Pritchard Street, in 1893 in what was the retail hub of Jo’burg in those days. The building was conceived by Cape architect Charles Freeman, and the 10 storey building was the nearest Jo’burg had to a Skyscraper.

 

Like Granny’s piano it features a beautiful façade, but alas, also like her piano, the beautiful inside wood work has been gutted, in the building’s case, by squatters. The property is anchor tenanted by McDonalds until 2019, and only a portion of the property is occupied, with the remainder currently vacant. In fact the building has been vacant for ten years.  The property extends over an approximate GLA of 7, 787 m², and features plenty of parking.

 

It was previously reported that owners, Wayne and Renney Plit, managing directors and founders of AFHCO Holdings, owners of 62 inner-city properties, a pioneering firm in CBD renewal, were planning to build 133 apartments with International Housing Solutions (HIS).  The Greatermans building was similarly converted into 400 rental units at a cost of R80m, also with equity financing from IHS. But this was not to be.

 

Instead, the Stuttafords Building is to be fully restored and converted into a 120-room hotel. The first three floors will be occupied by the international easygroup/Lonrho hotel. The easyhotels chain markets itself as offering no frills accommodation at international standard at competitive prices. The plan though is to extend the hotel into the remaining six floors in the years to come.

 

It’s a boost for Jo’burg’s CBD to have an international hotel chain of the calibre of easyHotel put down roots.  So life will return to the old building again. The Plits are reported to have said that they have every intention of restoring the facade of the building to its former glory. So granny’s piano gets some airtime for a new generation of city slickers.

 

The Dig-out Port and the South Durban Basin

Yes you heard right, the speculation is over, the deal is through, Transnet has bought the old Durban Airport site for R1.8 billion. But that’s nothing compared to the investment of an estimated R100 billion over the next 25 years for the vast engineering job that will employ 20 000 people to accomplish it’s task.

 

The plan is for Transnet to create a whole new terminal with sixteen container berths, five automotive berths and four liquid bulk berths.  To give you an idea of the size of the operation, the port of Durban has the following Terminals – Durban Container Terminal, Africa’s busiest (seven berths), Pier 1 Container Terminal(eight berths) , Multi-Purpose Terminal (also known as the City Terminal- 14 berths), Durban Car Terminal (three berths), and Maydon Wharf Terminal (fifteen berths). (Source KwaZulu-Natal Dept. of Transport)

 

The whole development is intended to reach completion by 2037. But for those who like instant gratification, the first phase should be finished by 2019 at a cost of R50 billion. That causes one to wonder though , if it takes seven years to spend R50 billion and the project is due to continue until 2037 then that’s another 17 years to spend the other  R50 billion. Interesting, watch this space.

 

This news comes on the back of the governments R21 billion infrastructure upgrade for the Durban port over the next seven years.  The dig-out port though will ensure the doubling of the capacity for Durban as a container port, enforcing it as the largest in Africa. Durban already moves 67 per cent of the country’s container traffic flows through its port.

 

The Independent on Saturday quote Safmarine’s Southern Africa cluster manager, Jonathan Horn, as saying that a bigger, more effective port will help shipping lines such as Safmarine, improve transit times, service reliability and vessel turnaround, while offering the benefits of increased efficiencies and flexibility.

 

The result of the combined existing port and dug-out extension is that Kwazulu-Natal in particular and South Africa in general has a strategic asset, “an effective platform for forging trade linkages between provinces within the country, with neighbouring states and the rest of the world – particularly the Asian and South American subcontinents – offering the province considerable investment spin-offs and opportunities.” The Daily New quoted Ndabezinhle Sibiya, spokesman for KZN Premier Zweli Mkhize.

 

The implication for property in the area is huge. Already land sales are booming in the south Durban basin. The south Durban basin is already the second largest contributor to the country’s economy. Gauteng is the largest, making up 34 per cent of GDP, and KZN is just under 17 per cent of GDP. Transnet’s dig-out port indicates a catalyst for economic development for the city, the province and the country.

 

The Independent on Saturday quotes Keith Chetty, a commercial real estate manager at Lighthouse property group as saying: “The demand for commercial and industrial property has increased dramatically in recent times in and around the current port.”

 

Residents living adjacent to the old Airport would be hoping to get a pretty penny for their homes especially since land is in short supply around the old airport area. One may ponder what will become of the old Clairwood Racecourse site.

 

Not everyone is dancing for joy though, business owners in the path of the expansion for one. There may be a need for some PR damage control by Transnet with locals too.  The Independent interviewed several ratepayer organisations in the area and there seems to be a definite mistrust and disappointment at the lack of communication form Transnet. A point has been raised that some communities in the area were the product of forced removals during the apartheid era, a lack of transparency by Transnet and local government could result in some short to medium term instability in the area.

 

The municipality needs to inform residents that the area surrounding the old airport will be rezoned industrial to accommodate the expected demand for land once the port construction begins.

 

There is no doubt that one of the most important spinoffs from the dig-out port will be jobs. In addition to the 20 000 direct jobs claimed, an additional 27 000 ‘indirect’ jobs are asserted with 12 000 sustainable, operational jobs which will remain upon completion for the project.

 

There are naturally pros and cons, but there’s no doubt the Dig-Out Port is fait accompli and together with the new Dube Port and Richard’s bay port, the KZN coastline and its arterials are likely to be a very busy place for some time to come.  Edward Gibbon wrote “The winds and the waves are always on the side of the ablest navigators.” Let’s hope Transnet has done its homework.

Cycling and the Construction Indaba in Durban

Good news from Durban as it talks shop and continues to extend its facilities for recreation. Cycling and construction are on the agenda.

 

The big Construction Indaba was not as dull as it sounds. With all the construction going on around the city of Durban, infrastructure projects, commercial and retail space and housing development it makes sense to see who’s who in the greater scheme of things. The purpose of hosting this event was for the Municipality to address the issues that were revealed by the Construction Research that the Municipality had conducted in 2008.

 

The research indicated skills shortages, inadequate access to capital and poor availability to information as the most pertinent matters affecting the accomplishments of emerging businesses in the City’s construction industry.

 

The Construction Indaba was aimed at empowering emerging and established contractors to become self-sustainable and as well as help them through the industry’s most common difficulties impacting negatively on business growth and sustainability.

 

The result was much Indaba about access to funding, BBBEE, Training Facilities, Supply Chain Management as well as legal matters. The difficulties noted in the Indaba revolved principally around access to finance and the accessibility of business opportunities. There seems to be a satisfaction all around that voices are being heard and expression was healthy and constructive.

 

The municipality plans to host workshops on the raised issues in partnership with financial institutions in an attempt to bring resolution. Furthermore the Municipality is planning to host more training sessions to assist delegates with skills development. The Indaba will be an annual event at the request of the participants.

 

And just when you thought it was unsafe …. Enter the City’s “non-motorised transport plans”, which will eventually link Durban to areas such as Umlazi, Kwamashu and Umhlanga.

 

But there’s a bump in the road. A cycle lane across the Ellis Brown Viaduct of the M4 Northern Freeway bridge has been under construction for several months, resulting in a nasty traffic snarl up with various lanes, and at one stage the entire highway, being shut at times whilst the new cycle lane was under construction.

 

Alas the wheels of bureaucracy grind slowly. The City is still waiting for a “final record of decision from the provincial department of environmental affairs for the construction of the ramps that will lead on to and off the bridge.” Huh? This means that the bridge section of the cycle route may not be opened until ramps are created at each end. Apparently we have to wait for May before permission is granted.

 

The whole route ranges from the Blue Lagoon to Riverside Road. Cyclist are currently stopping at the lane, which has been cordoned off by a concrete post, and tentatively cycling on the road past traffic to get to the other side. Not an ideal situation.

 

On a positive note, Greg Albert, chairman and secretary of the Cyclesphere Cycling Club in Morningside, said that the bridge looks amazing. “We have seen that it has been completed and it’s looking great; we can’t wait for it to open,” said Albert to the Independent on Sunday. He said once the bridge was opened to cyclists, it would encourage more social cyclists and families.

 

Ultimately the cycle lane should end at the Bird Park at this stage. Other cycle lanes include those extending along the beachfront and around other important city attractions. Most of these tracks had been established in time for the Cop17 conference and had cost the city upward of R6 million. Interestingly enough the City contributed about 30% to the budget of the tracks with the rest coming from international donors: the German government and the UN Industrial Development Organisation

Other possible cycling routes under discussion include a 2km pathway to allow pupils to cycle from Albert Park to schools in the Addington area. Looking into the future, the city intends  to make option to commuters  to cycle or walk to work in the CBD by offering “park and pedal” districts. Similarly the new rapid bus and train points will be a focus for future “park and pedal” facilities.

There’s always something positive and constructive going on in the City of Durban.

 

Durban’s more than just a pretty face

Looking past Durban’s ‘pretty face’ of the Moses Mabhida Stadium, uShaka, the new beachfront and golden mile, the proximity to world class game reserves and the Berg, not to mention the many attractions of the Seaside life style, one is still compelled to take Durban seriously as South Africa’s third largest, and often forgotten, commercial hub.
It seems Durban is experiencing a flurry of commercial and industrial property and infrastructure investment at micro and macro levels. But the publicity the city has received has been mixed of late.

 

It was one of those “do you want to hear the good news or the bad news” scenarios at the beginning of the year.

The Good news was that Durban had ‘a bumper festive season’ where tourists spent an estimated R1.2Billion offset against the R500 million spent by the city improving infrastructure. The bad news was the findings of the research study conducted by development economists Urban Econ on behalf of SAPOA that Durban is the most expensive South African city to live in compared with Johannesburg and Cape Town.

 

The study was based on tariffs applicable to new residential, retail, office and industrial property developments, from zoning and subdivisional fees to building plan fees, connection charges, consumption charges and rates. It turns out eThekwini is on average 30% more expensive than other cities. The major difference in eThekwini is the existence of a ‘development surcharge’ which some are challenging as unlawful.  Some say this is causing development to flee the city boundaries. Time will tell.

 

A point in case may be Ballito, since it’s outside of the grip of eThekweni.  Ballito has recently launched a major business services park. Some say the development promises to reposition the North Coast as a serious industrial property contender.  The move brings online 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.

 

Given the lack of similar space available between Durban and King Shaka the future looks bright for the business service park.

 

Back to eThekwini though. Bridge City, in Durban’s Kwamashu/Phoenix intersection has been trading since Oct 2009. But phases of this urban renewal project continue to be built which includes, among other things, residential apartments, a 500 bed state hospital, a regional magistrates court and government offices.

 

Last October saw the completion of Bridge City’s underground railway station situated beneath the mall. The development which is being linked to a bus and taxi hub will be an intermodal transportation facility easing road congestion and providing convenient transportation for about 613,000 residents in the surrounding areas of lnanda, KwaMashu, Ntuzuma and Phoenix.

 

A retail warehousing Business Park is the next phase of the 60ha Bridge City development and its launch will bring 12 hectares to the market. The Business Park is ideally suited to retail warehousing, construction related activities and training facilities. The Bridge City Town Centre is priced from R950/m2 for commercial/retailbulk and R300/m2 for residential bulk. The remaining permitted bulk in Bridge City Town Centre is 490 000m2 which will include approximately  4500 residential units, with the balance of 290 000m2 of bulk being for prime business space. Bridge City has been earmarked by eThekwini Municipality as “a catalyst for economic growth in KZN”.

 

But it’s not all about big developments.  Chantal Williams, leasing and sales broker for JHI Properties in KwaZulu-Natal has drawn a lot of attention having concluded in excess of 85 transactions for the lease and sale of commercial property in the region, receiving an award for achieving the highest individual sales turnover for any JHI Properties broker nationally.

 

“Standalone homes converted to commercial use and situated in good locations in Durban’s Morningside area, as well as prime office accommodation in La Lucia Office Park continue to solicit a high level of interest and enquiries,” says Williams. “The nodes which are most in demand are predominantly Morningside, Durban North and Umhlanga, with the size range mainly from 80-500sqm most sought after, and occasionally slightly larger premises.

 

In Durban’s CBD Williams recently concluded a transaction for 1036sqm of office accommodation for a call centre, LikeMinds, which has relocated to Durban Bay House – a building which has been upgraded to AAA grade.

 

Craig Ireland, director of LikeMinds, says the decision to make a home for the firm in the CBD was because all their staff use public transport. “Being in the city centre makes it very easy for staff to commute from a number of different locations, coupled with the fact that the concentration of retail in the CBD is a positive factor for our staff. A further attraction is the rejuvenation of the building, which will enable it to attract a good calibre of tenant as well as additional business,” says Ireland.

 

Finally though not exhaustively, land developer Tongaat Hulett is developing the Umhlanga Ridgeside quicker than you can shout economic slowdown. The four-phased Ridgeside development consists of 140 ha of land creating a triangle bordered by Umhlanga Rocks Drive, the M4 and M41, that links Gateway, La Lucia Ridge Office Estate, The Manors, Lower La Lucia and Umhlanga Rocks Drive. It is ideally positioned along the busy North Coast corridor, just 15 km north of the Durban CBD and harbour and only 10 km south of King Shaka International Airport.

 

The development, which offers residential, retail and leisure opportunities, and has included major improvements to the road infrastructure in the area, is expected to create 125 000 jobs over the 10 year development period. Investec, Vodacom and BDO have made Ridgeside their KZN home, and in the development sector, Zenprop, JT Ross Construction, Maponya, ERIS and a consortium headed up by FWJK Quantity Surveyors are making their presence felt.

 

There’s much commercial and infrastructural activity in the city of surf and turf. It’s a healthy mixture of private sector, local and national government input. How the city is run is going to require hard-core engagement from locals and business to see to it that the cream isn’t skimmed off the top for the fat cats that can smell investment from a long distance.

The City of Johannesburg in the News for all the Wrong Reasons

The City of Johannesburg seems to be in the news for all the wrong reasons, again. While the Property Owners’ and Managers’ Association (Poma) and The Johannesburg Development Agency (JDA) continue to do selfless and sterling work for the city, the council continues to dance about on thin ice.

 

Last year saw, among other things, the wrangling over The South African Property Owners Association (SAPOA) taking the City to court to set aside its budget following the city’s increase of the rate ratio applicable to commercial properties from 1:3 to 1:3.5. The additional 18% increase imposed by the City of Jo’burg burdened the commercial properties owners, and in many cases tenants, with an estimated annual over payment of R300 million according to Neil Gopal, CEO of SAPOA.

 

But the court case came to a sticky end for SAPOA in the South Gauteng High Court as the court ruled that there had been “plainly adequate publication and notification” relating to the raising of the rates in question.  Regardless, this has left a foul taste in the mouth of commercial property owners and tenants as they have to cough up the heavy increase.

 

Many developers and investors are also looking at the City of Johannesburg with a long face. Whilst pouring millions into the inner city, developers face countless red tape issues in getting plans and procedures rubber-stamped. Some developers are now holding back what they estimate that they owe in taxes, rates and services and have taken the council to court where they have cut off for non-payment. In the cases that have gone to court so far, they have not only forced the council to reconnect them but have also been awarded costs against the council. Alas, not all is well in the state of Jo’burg.

 

The Johannesburg Development Agency works like a Trojan in its visions to rejuvenate the CBD and inspire financiers to not give up on the city. “Yet their efforts are completely undermined by the [Jo’burg] council’s revenue department, which disconnects services to buildings even though accounts are paid and the courts have upheld this position.” Writes Property24’s Paddy Hartdegen.

 

The City of Johannesburg also found itself in The Constitutional Court which declared the City of Johannesburg’s housing policy unconstitutional and ordered the City to provide temporary, or ‘emergency’, accommodation to the 86 poverty stricken people living in Berea, Johannesburg.

 

The Court held that the City of Johannesburg was obligated to provide temporary accommodation to desperately poor people facing homelessness as a result of eviction. The Court also criticised the City’s failure to plan and budget for housing crises and labelled its argument that it was not legally entitled to do so “unconvincing”.

 

It seems the City feels that it is only obliged to provide temporary shelter for people it evicts from its own buildings or those deemed unsafe, not those who are left on the street as a result of legitimate private evictions. The Court declared this unreasonable and unconstitutional.

 

But on Jo’burg’s billing front a much more protracted tale of woes is playing out.  Right on the tail of Treasury and rating agencies raising concerns about The City’s financial stability, particularly regarding the low collection rates and The City’s operating margins, it was up before the National Consumer Tribunal.

 

However The City, in a bid to avoid a possible R45m in penalties, argued before the National Consumer Tribunal that complaints about inaccurate billing for water and electricity did not fall within the mandate of the National Consumer Commission.

 

The Auditor-general Terence Nombembe stirred the waters by raising concerns about the accuracy of the city’s finances in its 2010-11 audit report, based on billing discrepancies picked up during the audit.

 

Advocate Michelle le Roux, on behalf of the City of Johannesburg, said that the commission did not have valid and legal grounds to issue the city with compliance notices for 45 consumer complaints. She went on to declare that the provisions the commission relied on did not give results in prohibitive conduct as stipulated in the act. “However, if the commission had jurisdiction, then it failed to follow the required procedure before issuing the compliance notices.”

 

The point raised by the commission though was that residents were on the wrong end of rough deal and that The City has not responded in reasonable time to the resident’s queries. Delaying the issuing of transfer certificates, the point in case, has had a negative effect on the sale of property. The City admits that up to last month 109 000 enquiries remained unsettled and 56 000 of those were billing related.

 

The greatest concern in the minds of the City it seems is the criminalising of the municipality which would be referred to the National Prosecuting Authority.

 

A loud bureaucratic sounding voice came out of Advocate Ms Michelle le Roux, on behalf of the City of Johannesburg, that the service the city provided to residents ended before the invoice was issued, therefore the invoice was only a consequence of the service and could not be covered under the part of the act that deals with prohibitive conduct and the delivery of quality services. Urg, could it taste any worse: the taste of ‘pass-the-buck’ soup. The flavour of ‘not-my-responsibility’ pie. Could The City and its legal voice sound more bureaucratic, less helpful, less service orientated.

 

Ms Mohlala for the Commission summed up the attitude of The City stating that this interpretation of the act, by the city was, “superficial” and “not based on the actual reading and spirit of the act.”

 

There are 220 complaints outstanding against the City of Johannesburg, unprecedented in the history of the commission.

 

What’s next? It’s only March, it’s not a good start to the year.  Johannesburg has a long way to go before the City of Johannesburg matches the excellence and innovation of its private sector, which continues to lead the way with a disproportionately low level of help or incentive from the Metro, which has the symptoms of Apartheid era bureaucracy and Third World incompetence.

 

Jo’burg’s Housing Policy Under Scrutiny

By April this year, 86 otherwise evicted, people who live well below the breadline, should be accommodated at the behest of the Constitutional Court by the City of Johannesburg.  At the centre of this legal tussle is the matter of the constitutionality of the City of Johannesburg’s housing policy, which has been found wanting.

The Constitutional Court today declared the City of Johannesburg’s housing policy unconstitutional and ordered the City to provide temporary, or ‘emergency’, accommodation to the 86 poverty stricken people living in Berea, Johannesburg. The Constitutional Court’s unanimous judgment, written by Justice Van der Westhuizen was regarding the application of Blue Moonlight Properties to evict the occupiers from its property.

This comes at a time where Maphango and 17 others verse Aengus Lifestyle Properties comes up before the constitutional court. Those with property investments, landlords in poorer residential communities in particular, have their eyes cocked toward the outcome. The difference between the two cases though is that Maphango and the 17 are paid up lease holding flat dwellers having their leases terminated. The Berea 86 are poverty stricken families that have sought shelter in what are squalid conditions but who don’t want to move because they would be homeless and away from their sources of income.

The Court held that the City of Johannesburg was obligated to provide temporary accommodation to desperately poor people facing homelessness as a result of eviction. The Court also criticised the City’s failure to plan and budget for housing crises and labelled its argument that it was not legally entitled to do so “unconvincing”. It seems the City feels that it is only obliged to provide temporary shelter for people it evicts from its own buildings or those deemed unsafe, not those who are left on the street as a result of legitimate private evictions. The Court declared this unreasonable and unconstitutional.

Similarly prospective landlords who purchase property aware that it is occupied “may have to be somewhat patient and accept that the [owner’s] right to occupation may be temporarily restricted” in the event that the eviction lead to homelessness.

Therefore the Constitutional Court has ordered that alternative accommodation be made available in a location as near as possible to the Berea property. Having done so the occupants are expected to vacate and move to that accommodation.

Executive director of the Socio-Economic Rights Institute of South Africa (SERI) Jackie Dugard said “the City has been in a state of denial about the needs of poor and desperate people under threat of eviction by private landlords within its jurisdiction. That must now end. The Court has recognised that the state has obligations towards poor people regardless of whether a state or private entity evicts. The City must begin to engage actively with its obligations and budget to give effect to them.”

Morgan Courtenay, the occupiers’ attorney at the Centre for Applied Legal Studies (CALS) said “this is a huge victory for the poor generally and for the occupiers in particular. We call on the City of Johannesburg to immediately take steps to implement the Court’s order and to carefully consult with the occupiers and their representatives to this end”.

 

Although quite a different case, the similarities of which leaves one curious as to which way the Constitutional Court will swing with the Maphango and 17 Others v Aengus Lifestyle Properties. The consequences for landlords in particular and South African property in general would be sweeping in the event of a favourable decision for the tenants. Whatever the outcome South Africa’s Constitutional guarantee that everyone has the right to housing is being challenged on all levels.

 

Confidence in a Province that has Confidence in itself

A Cape Peninsula estate agency MD Lanice Steward of Anne Porter Knight Frank is quoted as saying recently that “there is a growing confidence that the Western Cape will be efficiently run, that it will not only spend the money allocated to its various departments but will do so with wisdom and insight into the needs of the communities it serves.”  Does the Western Cape deserve the positivity expressed by Steward?

Without concerning ourselves with party politics or getting caught up in comparisons a perusal of some of the vital signs of the province do indicate health. It may be that there is a proactive air about the Western Cape. Getting beyond some of the more obvious signs like the provinces’ record of intent with regard to fighting crime and corruption, there is, it seems, to be a genuine striving toward service delivery. But there are other tell-tale indicators of a culture of intent.

Investment indicates a positivity and confidence within one’s own market.  The Western Cape Investment and Trade Promotion Agency reports cautious optimism for investment projections for 2012. “The growth in global projects over the past five years was an indicator of appetite for investment and was likely to have a positive impact on Western Cape foreign direct investment (FDI) projects going forward”, said Wesgro IQ head Jacyntha Maclennan. The Western Cape’s FDI into Africa grew by 73.3% year-on-year, with the province accounting for the lion’s share (74%) of South African investments into Africa, revealing a distinctly outward focus.

Wesgro’s CEO Nils Flaatten says that The Western Cape’s strong investment into Africa was largely due to property development projects and financial services.

In addition to this Cape Town was found to be most popular city in South Africa for FDI between 2007 and 2011. The Western Cape was noted as the second most popular provincial FDI destination. The Western Cape took two of the leading 15 FDIs into South Africa in 2011. They were both capital investments going for more than R350-million in the field of communications.

Engineering News reports that the top three sectors in the Western Cape for FDI from 2007 to 2011 were software and IT services, with 17% of all; business services, holding 12% of projects; and communications, capturing 9.4%; renewable energy attracted only 2% of projects.

So much for FDI, is the Western Cape investing in itself? As it turns out Helen Zille announced directly after the President’s state of the nation speech, what she calls “game-changing” infrastructure plans.

“The most powerful economic lever in the hands of a provincial government is the ability to build growth-creating infrastructure,” Zille told the opening of the provincial legislature in Cape Town.

Four regeneration projects have been announced: the Founders’ Garden/Artscape precinct, the development of a government precinct and the further development of the Somerset Hospital precinct. The Cape Town International Convention Centre is to be doubled in capacity.

Zille said the province would launch a road network improvement project to support the Saldanha Industrial Development Zone initiative.

She also announced plans for a project to provide broadband internet access to every citizen, school and government facility in the province. The goal was to connect 70% of government facilities and every school by 2014. Within the next two years, Khayelitsha, Mitchell’s Plain and Saldanha Bay would ideally all be connected, Zille said.

Rightly stated, Zille points out that no government can achieve economic development on its own, hence the creation of the Economic Development Partnership (EDP). The intention is for all stakeholders in the economy to meet and work on a shared agenda for development and economic growth. The steering committee would consist of members from business and government.

Viewing from the property side is the Western Cape Property Development Forum which was established to interact with the City “to address existing processes, practices and policies to ensure that systems are streamlined and effectively integrated to deal with issues that might impede development “they announced.

Having been formally established in 2008, the WCPDF has been operational since 2007. An example of one of its events was the hosting and facilitating of World Planning Day – with the theme Planning for a Low Carbon City. The event brought together architects, town planners, developers, economists and environmentalists with the view to improving interaction between these vital role players.

The Western Cape has had its fair share of dereliction challenges but Cape Town has led the way in coming to terms with this common urban phenomena. When it became clear that a blanket approach was necessary a Problematic Buildings Unit was created to end the rot.

The unit was formed to focus on and deal with derelict properties, which were contravening regulations, including those relating to fire and health.  This move is a partnership with the city’s Human Settlements Department, the unit has now come up to speed with the city’s most severely affected buildings.

A bylaw was passed last year initially identifying 280 problem buildings. By half way through the year there remained 160 buildings under investigation throughout Cape Town – in the city centre, Mitchells Plain, Durbanville, Salt River and Camps Bay.

Cape Town also has a dedicated Social Housing Police Unit that is focusing specifically on city council rental properties.  Swift action and intent among lawmakers has resulted in this effective multipronged approach.

Although intent has come from Western Cape Government a hand in hand approach with National Government is also required on some projects. It has been announced by Finance Minister Pravin Gordhan that the Clanwilliam Dam wall will be raised in order to provide an additional 10 000 000 cubic meters of water a year for downstream farmers. The dam is situated in the middle reaches of the Olifants River, near the Western Cape town of Clanwilliam.

One project which sums up the attitude of a local government wanting to be, or at least seen to be, user friendly, is the Red Carpet Call Centre. Small businesses in the Western Cape can now call a provincial hotline to lodge and request assistance for their red tape-related issues or for any general information on starting and growing a business.

The Call Centre, which arose out of the Department of Economic Development and Tourism’s Red Tape to Red Carpet Programme, reflects the Western Cape Government’s intention to create and maintain an enabling environment for business.

Time will prove whether the way things appear is how they actually are. But the Western Cape Government keeps appearing in the news for all the all right reasons, at least a good enough measure of the time to warrant a heads-up for property investors who are discerning that it’s more than just the Cape’s natural beauty and bounty that’s cause for the property market to blossom.

Letting Lanice Steward have the final say: “Our upcountry buyers see it (Western Cape) as likely to forge ahead economically and it has to be said that this perception is largely based on the feeling that the administration is more competent than that of other provinces.”

Financial Services Employment Around The Globe

There are no prizes for guessing how much pressure, employment in the financial services sector is under these days. Scrutinizing some statistics coming in from the world’s leading financial cities may lead one to some more thought provoking conclusions. Keeping in mind that the amount of office space required is directly proportional to the volume of jobs thereby creating a knock-on effect in the commercial property industry.

London: the Confederation of British Industry and PricewaterhouseCoopers reported that UK financial institutions plan to slash investment and reduce jobs in coming months, responding to increased competition, a more imposing regulatory atmosphere and a decelerating world economy.

New York: American Banks have been most prominent in the news when it comes to layoffs last year. Bank of America, Citigroup and Goldman Sachs made approximately 60 000 jobs redundant in 2011. RBS is dropping 3500 more jobs over the next three years in addition to the 1100 slashed last year.  It’s been reported that Morgan Stanley is to shed jobs this coming month.

Looking over the last decade there are some surprising trends. Some markets have experienced growth in the financial services industry.

Toronto: There was a marked increase in financial employment during the past decade, with the exception of a recession-related decline by 2010. But overall since 2000 where Toronto’s figures for the sector were at 223 100 the growth has been a steady 3.7%. Today, financial services jobs figures are at 319 500.

Zurich and Geneva: Financial sector job growth in Zurich has increased over the last ten years. From 70 000 to 92 400 Zurich has grown by 2.7% in financial services jobs. The lesser Swiss market of Geneva has experienced similar growth over the same period. Switzerland not being a member of the European Union is arguably better placed to weather the region’s turbulent economic situation.

The most optimistic figures are coming out of Asia. Although not entirely surprising given upward growth rates in that region over the past ten years.

Shanghai: This centre of financial service for the mighty Chinese boom has experienced the highest increase in financial services employment with the total number of people employed in the sector nearly tripling over the past decade moving from an estimated 85 000 jobs in the sector in 2000 to over 217 000 by 2010. That’s an increase of 11%!

Hong Kong: This city was recently rated the world’s top financial centre deposing previous number one New York City according to World Economic Forum. Like Shanghai, Hong Kong has also experienced a rapidly expanding financial job market. The economy and property markets of Hong Kong have climbed recently due to positive domestic and regional economic growth as well as increased investment into Asia Pacific, all of which has secured Hong Kong’s status as one of the top global financial centres with financial services jobs growing 2.1% from 171 000 in 2000 to over 210 000 in 2010.

Singapore: Jobs in the financial sector are greater here than Hong Kong.  Growing by 4.6% over ten years from 100 500 jobs to 157 100. In fact the jump was 25% between 2007 and 2010 and doubled between 1996 and 2010. One could suggest that Singapore has escaped the global financial crisis given there has not been any annual decline in employment figures.

But New York City is the world’s largest market for financial services employees. Not having recovered fully from the 2001 recession, by 2008’s global financial crisis further job cuts were a certainty. The so called recovery beginning in 2009 has been decidedly feeble and has not been able to hold back the flow of cut backs. Measuring over the same ten period as above New York City’s financial services jobs shrank from 600 000 in 2000 to 531 000 in 2010.

Chicago: That other great bastion of the US financial industry dropped by 0.9% from 310 000 to 284 000 jobs over ten years.  Boston figures have also declined.

London: Across the pond, London’s recovery has been stronger than any of the main U.S. financial centres, and there’s even been a little growth of 0.1% between 2000 and 2010. London employs 300 900 in the financial service industry as opposed to 297 300 eleven years ago. As the largest financial centre in Europe, London has been confronted head-first with the Eurozone crises, while the so-called Tobin tax on financial transactions, along with a number of other upcoming national and regional regulatory changes, loom on the horizon as well.

The European Commission, the executive body of the European Union (EU), has proposed implementing a tax, starting in 2014, on all transactions involving stocks, bonds and derivatives that are conducted between financial institutions. It would apply to banks, insurance companies, investment funds, stockbrokers and hedge funds, among other financial firms. In spite of all these obstacles, however, it’s worth noting that London is still in better shape than New York—at least when it comes to the recovery in financial services employment.

One may well enquire as to what the share of financial employment is, as a per cent of the total labour force? Are some financial centres more specialized in financial services employment, versus other industries?

It’s Asia again: Studies show that Singapore, Hong Kong, and Shanghai have not only created more financial jobs over the past decade, they are becoming more specialized. Also gaining market share are the Swiss markets of Zurich and Geneva, both financial centres have become relatively more concentrated in financial services employment, though this growth has stalled since the global financial crisis of 2008.

Similar research reports that, for the most part, the more established financial centres such as New York and London have actually become less specialized in financial services employment.

Politics and regulation are likely to be very influential on the future of global financial centres and consequently the financial services employment rate. The potential financial regulation, the global economic slowdown and the EU crisis are all creating great uncertainty for financial centres.

The UK for example is resisting the EU’s proposed Tobin Tax on financial transactions especially in the light of Ernst & Young, warning that the EU could face up to a €116 billion shortfall in EU finances as a result of the loss in economic activity associated with the imposition of the tax. London is also resisting the EU’s proposed Tobin Tax on financial transactions. On London’s upside: the offshore Yuan market is gaining increased interest, with British and Hong Kong government leaders announcing plans this week to enhance cooperation in establishing London as a new hub for the offshore Yuan market, as a complement to Hong Kong.

In Asia, financial centres like Hong Kong, are displaying a far more positive outlook and higher growth rates than their American and European counterparts. In Europe there is some variance across markets; Swiss banks for example are expected to continue outperforming their European Union equivalents, thanks to favourable tax treaties and a less arduous regulatory environment.

Gulf and Asian markets are also jockeying for the growing Islamic finance market. Cities such as Dubai, Seoul, and Moscow are all competing to emerge as more prominent players in the financial market.

Pressure on employment in the financial services is real and continues to be influenced by the great undercurrents of politics, regulation and growth.  Could those in the financial services sector end up following the money, relocating from city to city as each financial centre prospers or declines? Or is it possible for growth to continue ad infinitum in each financial centre without shedding the ‘deadwood’ accumulated over a prolonged stretch of growth? Office space in global financial cities dries up or opens up in direct proportion to financial services jobs. It will pay landlords to pat the goose that lays the golden egg.

Old Mutual Corporate Social Investment

Old Mutual like any business, is in business to make profits. To what degree any business should express some sort of social conscience may be indicated by the community it does business in. In South Africa every company is under pressure to have (CSI) Corporate Social Investment programmes indicating a social conscience and a willingness to be part of social change.

Old Mutual Property, owners of Gateway Shopping Centre, announced on the 31^st January “continues to look for innovative ways in which to make valuable contributions to sustainable community development and township upliftment.” This is referring, in particular, to the redevelopment of the Kagiso Mall in Mogale City.

This isn’t the first time Old Mutual Properties have done successful revamps of late. A few years back they were awarded the Golden Arrow Award for the revamp of the Riverside Mall in Nelspruit and awards were also won for the revamp of The Bluff Shopping Centre.

Kagiso is a township falling under the Mogale City municipality. The mall was an old 1980’s white elephant with poor occupancy rates. The shopping centre had become irrelevant to the community. Although the anchor tenant, Shoprite remained, a further 9200sqm of retail has been created, about 50 shops including late-night fast-food outlets.

Old Mutual Property’s Hein Smit believes this is “a sustainable contribution to the environment and township communities, which enables wider socio-economic upliftment.”     He insists that the sustainability is all in the design which includes “utilising local skills and expertise in the development phase, re-usable building materials (which are donated to the local community if not used in the new development), rainwater harvesting, low energy lighting and improved insulation specifications.”

If one is looking for Old Mutual Property’s track record there is always the Phanghami Mall which took advantage of a more decentralised retail development area servicing 8 townships and various surrounding villages.  Close to the Punda Maria gate of Kruger National Park it has a tourism component to the project.  Aspects of community upliftment in the construction and management of the centre were considered vital to the scheme.  R75 Million was invested.

Similarly Phumlani Mall in Tembisa on the East Rand was bought for R175 Million and revamped with the purpose of uplifting the community. With a reported tenant mix of 75% National chains one hopes there is something still in for local retail.

As commendable as these projects may be one has to consider them in the light of other projects on the go elsewhere. For example Old Mutual Properties has announced that it plans to invest a whopping R20 Billion in