Category Archives: Property

What every Potential Home Buyer should ask an Agent

fetchimageSo 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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

property-investment-real-estate-trading-word-cloud-illustration-word-collage-concept-35121918When 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.


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.


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.


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.


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.


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


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’Picture

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.



Pre-Approved Bonds

So what is a pre-approved bond when it’s at home in front of the fire warming itself? OnePicture web definition says that a “pre approved bond gives both the buyer and seller the assurance that the buyer can afford offers made within a certain price brand, and that they will qualify for the bond required to make the offer.” So let’s unpack that some more.

How It Works

When you use a bond calculator it’s reassuring to know what to compare figures to, what to feel comfortable about investing into the selling price field. Getting yourself a pre-approved bond is the very first thing you should do before you put in an Offer to Purchase.

The National Credit Act stipulates that monthly deductions, like monthly living expenses, income tax and debt need to be considered. It is recommended that you provide your bank or home finance professional with a precise summary of your monthly expenditure and your level of debt so your pre-approved figure can be established. Your bank or home finance professional will formulate your pre-approval figure and issue you with a certificate. This enables you to provide an estate agent with a pre-approval certificate that has been calculated according to the National Credit Act requirements.

The pre-approval is valid for 90 days after which your bank or home finance professional should contact you to check whether your expenses have changed over this period. (It’s better not to wait to be contacted but rather contact them a few days in advance.) If there has been a quantifiable change, the pre- approval will be revalidated and recalculated. If there is no quantifiable change to either income or expenditure, your bank or home finance professional will reissue a revalidated certificate. This ensures that your input data for the bond calculator is always accurate.

After the banks have assessed your home loan application, and if the application is successful, the bank will issue a Quotation which will include interest rate, cost of credit, any special conditions that may apply, etc. Your bank or home finance professional will discuss this and other bank quotations with you. Once you settle on a Quotation, your bank or home finance professional  will proceed to instruct the attorney appointed to register the mortgage bond.

Advantages of having a pre-approved bond

It can be so frustrating for a seller to accept an offer only to find out weeks down the line that the deal has fallen through due to the buyers inability to get a home loan. It can also be very disappointing for the buyer. With a preapproved bond this can be avoided. Using a bond calculator you can determine what you aspire your preapproved bond to be.

Bear in mind when dealing with sellers and Estate agents that they want to sell to you! You are holding the cards when it comes to buying and you will seek out the very best deal available to you. This attitude will make the seller think twice before counter offering and will have the Estate agent working twice as hard to close the sale.

One should be encouraged to be assertive when making an offer, apply for bond pre-approval before you go out on a show day.

The posture of the Estate agents, like anyone who is dependent on financial institutions giving credit to customers in order for them to earn an income, is very different towards a pre-approved buyer, especially one who has clearly gone to the trouble of doing the necessary homework with a bond calculator.

The agent knows that you are looking for a home and that you essentially have the money available. This is a huge bonus for the agent who will go out of his way to help you spend your money.

The other thing the agent will be very aware of is that you don’t have to spend your money with him/her but there will be other agents out there trying to help you spend it. The result is that once you have made an offer he will do everything in his power to get the seller to accept your offer.

Currently we are living in a buyers market with some areas selling homes for as much as 30% below their asking price. Both the agent and the seller know this, the pressure is on the seller to accept what he knows is an approved buyer when you walk in..

Good luck with pursuing your preapproved bond

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.Picture

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.Picture

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.

  1. 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.

  1. 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.


So you’ve decided to work out the dePicturetails 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.

Offshore Property Investment – Not for the Faint-hearted.

OFFSHORE-INVESTINGTiming 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?offshore-investing

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

shoppingIf 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,

Students-from-across-the-north-west-participated-in-a-mock-protest-before-doors-opened-to-the-Lock-In-PRESS-SHOT-670x457After 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 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.STD

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.

qrcode.23545541This 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 cdownloadost 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.

Backleasing, Backsliding, Boom or Bust

images (1)


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.

download (3)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.images (7)

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.

Life Rights, are Reverse Bonds an Alternative?

images (2)Making up for lost time during the Second World War, many soldiers returning home to Europe, North America and the colonies establishing families, the children of which are embarking on their retirement years round about now. Unfortunately this collective has been described as largely asset rich and cash poor.

Given that most people retire later than expected, still working long after retirement age, and having not planned adequately for their sunset years, choosing where to live is arguably the next biggest decision in the retirement process. Faced with the prospect of selling one’s property with the view to purchasing a retirement home, there are some options to consider.

Broadly speaking the options are Life Rights, share block, freehold or sectional title. The latter three are thoroughly marketed and explored. But ignorance regarding Life Rights continues.

Life Rights is the most widely used retirement home model worldwide. Life Rights offers the lowest purchase price relative to product. The fact that there is neither transfer duty nor tax payable is an attractive boon.

download (1)It is important to be appraised of the following facts:

The purchaser does not have ownership of the unit. The ownership of the unit is retained by the development/complex and is not transferred to the individual as with sectional title. The purchaser has a right to live in the unit for the remainder of his or her life. In essence it’s like paying a lifetime of rental in advance. (This usually extends to a spouse or life partner upon the death of the other.) The unit though may not be bequeathed.

When the remaining party dies or chooses to leave the unit they or their estate are paid on the basis that the capital sum paid is returned plus 25% of the profit after costs. The percentage will differ from one development scheme to another and the amount or percentage is usually linked to the period of occupancy.

An additional benefit of entering into a life right scheme is that accommodation costs remain fairly stable, especially if the development offers a fixed for life levy.
images (1)Which bring us to Reverse Bonds or Reverse Mortgages.
It has been suggested by Rob Lawrence of Rawson Finance that some senior citizen consider a Reverse Mortgage. A Reverse Mortgage may be the answer to some who have paid up properties and no or little income to either maintain the properties or provide for themselves. The Reverse Mortgage is a loan paid in a lump sum, or monthly, to a recipient by the bank, against the security of a mortgage bond. No bond repayments are required and the funds advance can be used to purchase a pension or any other asset that can increase income. Alternatively, the proceeds themselves can be paid out as an income.

A reverse mortgage is an arrangement with some of the rules reversed while maintaining the basic principle of a mortgage. It’s still a loan secured by your real estate, but you don’t have any deadlines on payments as long as you live in your home or on your property. With a reverse mortgage, you basically convert the value or the equity of your home into cash.

Although Common in the USA, UK and Australia for many years, there are only two institutions currently that will offer this facility in South Africa: Nedbank and Senior Finance.
Some conditions usually include: 1) the bank, not an independent evaluator, will value the property, 2) the percentage bond advanced on the value of the property is dependent on the purchaser’s age, 3) the mortgagee has to be over 65 years old, and 4) any change in the ownership of the property automatically makes the sum advanced fully repayable.

cartoonLooking at the downside: What if the value of the loan plus interest exceeds the value of the property by the end of the loan period. This means that the borrower or his/her estate may need to sell assets in addition to the house to pay off the loan.

Upon the death of the borrower the surviving spouse may have to repay the debt, which could result in the need to sell the house in the process. A reverse mortgage could undermine your intention to leave an inheritance for your children and others, instead leaving a legacy of debt.

Conventional wisdom would have it that it’s risky business to borrow money to fund living expenses where the interest rate is linked to the prime rate.

The Reverse Mortgage is really aimed at the asset-rich/income-poor senior citizen who isn’t planning to live for decades and decades. A 65 year old taking out a loan and living to 85 has accumulated twenty years of debt plus interest. That’s quite a legacy.

After having spent ones whole life making monthly payments to this or that and worrying about debts perhaps living out ones retirement years under the obligation to ‘keep it short’ or pay up just may make Life Rights seem a lot more attractive.

Visit the Waterfall Community Retirement and Eldercare Page.

Phoenix Industrial Park- gets well deserved boost.

Phoenix1Phoenix 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 30th 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

B_B_BCO-BIM-Research2013British 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

“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 Website)

Airport Offices, Conference and Meeting Places – what to expect


Fraport's the Squaire mixed-use development

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?

As it turns out pretty close, but often with no cigar. When searching across the globe for serviced office accommodation at airports the directories, internet or otherwise are all smoke and mirrors. A cursory scan of office space at airports on Google or Yahoo gives you blatant statements like “Serviced Office at Heathrow” or “Turnkey facilities at O R Tambo.” With further investigation you discover that there is a helpful little map with direction on how to get to the said facilities from the airport – not in the airport!

images (1)So don’t be deceived you may not be able to pick up your luggage and push it to your office at the airport. What you can do is take a short taxi or shuttle ride to one of numerous facilities offered close to airports. Of course this isn’t new by any means but the prevalence of ‘designer’ type offices specialising in accommodating ‘on-the-hop’ business people who want to slip in and out to have a meeting with clients in meeting facilities or a conference room, is on the increase.

Having said that there are many airports that do offer virtual offices in the actual airport. Schiphol Airport, Europe’s 4th busiest, is located in Amsterdam. For $130 a month you can have the key to a very basic but functioning office with electricity, shared ablutions, Wi-Fi and a desk.  These seem to be typical.

download (1)So why are serviced office facilities necessary? Minimal capital outlay: In the serviced office, you have the choice of bringing your own furniture and office equipment or renting these items from your landlord. According to serviced office providers, the cost of using a serviced office, with or without conference facilities, is approximately 40 to 50 per cent of the cost of setting up and staffing a comparable conventional office. In a Virtual office you bring nothing at all, just your key and WiFi is mandatory.

So what is a Turnkey or Virtual operation? When you rent a serviced office, you don’t have to waste your time designing an office, installing electric and phone lines, recruiting staff, and taking care of all those other details. With a turnkey you make one call today and have a fully functioning office tomorrow.

The difference with these facilities at an aerotropolis is that your facilities are designed for ease of use from the airport and the airport is seen as the centre of the universe with all its tentacles slipping seamlessly out from it into the world around it. Again there is nothing new in this as hotels and conference facilities have been sidling up to airports for years. But the relationship has now become somewhat symbiotic.

Looking more at the conference facilities in particular most hotels either point you to facilities adjacent to or within close proximity to the airport. Like offices most advertised facilities for airport conference rooms are actually not at the airport itself, in fact the advertisements on the internet are particularly misleading in this regard.

imagesWhere there are conference facilities and meeting rooms at airports, the model, if there is one, is one of outsourcing. Looking at South Africa as an example: The O R Tambo International Airport has the Intercontinental Sun running upmarket and fully serviced conference and meeting facilities. Boasting seven boardrooms and two conference rooms, facilities cater for between 10 and 100 delegates and can accommodate up to 140 guests for cocktail functions in the private Savuti Restaurant.

Looking abroad, Munich Airport has the Kempinski Airport Hotel located at the centre of the airport beside the terminals. The Munich Airport Academy and training centre specialises in conference facilities and meeting places for business people right beside the airport.

The two above examples seem typical of many airports that seem to have handed over the conference model to the professionals

Airport Meeting Places is big business. There are organisations like Alliance Virtual offices. This international network offers both turnkey facilities and meeting rooms for across the globe. Many of these in airports. Typically these networks’ facilities offer:download

  • Wi-Fi Internet: Most locations will offer wireless internet access for free, or for a minimal charge.
  • They promise “Friendly welcome”: All venues are staffed by a professional team who will be ready and waiting to receive you and your guests. Many venues will also offer additional receptionist support such as administrative services.
  • Presentation facilities: Most meeting room venues will have presentation facilities on offer such as screens, projectors, wide-screen monitors and whiteboards.
  • Video conferencing: Many venues now have video or audio conferencing capabilities, perfect for long-distance meetings with remote teams or board members.

Airports and aerotropolis business culture is more than ever focused on the world of networking and connecting people using facilities that are both hospitable and convenient. The important thing is if you really want to meet at an airport make sure the facilities you require are actually at the airport.

Durban’s Watercrest Mall Finally Putting Waterfall on the Map


(See my article at Skyscraper City and eProp too

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

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

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

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

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

REITS: Internal Verses External Property Managment.

They’re like non-identical twins, opposite sides of the same coin – internal and external management of REITs seems to be very much a case of “what you lose on the swings you gain on the round-abouts.’

Generally, REITs are either internally managed, with management as employees of the  REIT/operating partnership, or “externally managed” pursuant to a management contract with no direct  employees. Usually, private REITs and registered-but-not-traded REITs are externally managed for a fee by a related party manager. The related party fees for these types of vehicles can be significant and will vary based on the underlying investment premise and effort involved (e.g., “core” investment portfolio strategies typically have lower fee arrangements than those of more “opportunistic” vehicles).

In a REIT with an internal management structure, the REIT’s own officers and employees manage the portfolio of assets. A REIT with an external management structure usually resembles a private equity style arrangement, in which the external manager receives a flat fee and an incentive fee for managing the REIT’s portfolio of assets. The debate over which management method is preferential is favouring the internal management model. The controversy has centred on which method of management produces higher returns for investors, with some arguing that conflicts of interest underpinning compensation arrangements for external managers create incentives not necessarily in the best interest of the shareholders. Internalising management has emerged as the conventional wisdom for removing any conflict of interest between management and investors.

An external manager will typically receive a flat fee and an incentive fee. Generally, the flat fee is based on the asset value under management, which gives the manager incentive to purchase assets, while the incentive fee is based on the returns from the sale of assets. Most incentive fees for external managers are structured with a high water mark. Therefore, external managers will receive incentive fees only when the net asset value of a REIT increases above its highest historical net asset value.

External structures can create governance risks (at least when compared to REITs that are internally managed) and these governance risks can translate into credit risks. The central governance risk is that the external manager uses its control to extract value from the REIT to the detriment of shareholders and bondholders.

Curiously, data is not supportive of the thesis that internally managed vehicles outperform externally managed vehicles, despite popular opinion to the contrary. The potential for conflicts of interest are still greatest in externally managed vehicles and thus will continue to be actively debated. Ensuring maximum alignment of interests between investors and managers seems to be the key to regaining investor trust and support for externally managed REITS.

Having said that the following benefits for external management have emerged:

  • An external manager has larger scale than the individual REIT, so it can provide services at a more economical cost than managing the REIT internally.
  • With regards to management succession, externally managed REITs have a broader set of employees from which to select senior executives, thereby broadening the skills and experiences available to the REIT.
  • When external manager service agreements are specific and outline strict performance criteria, boards of REITs are better placed to oversee the manager’s performance. (Source: Moody’s)

On the other hand the external manager uses his/her influence over the REIT to further his/her own interests over those of the REIT’s shareholders or bondholders; external management representation on boards limits the board’s capacity to independently oversee the external manager and there are few, if any, independent control structures.

As South Africa is still feeling its way into the REITs market it may be worth our while examining what the trends are internationally: The US has typically internally managed, with a few externally managed REITs. External managers are often controlled by owner managers and may manage multiple and related REITs. In the United States, most REITs have now adopted the structure of internal management.

Australia seems to value both internally and externally managed REITs however a large portion of REITs have transitioned to internal management structures over the last few years.

Canada has some externally managed REITs but most are internal as are European, Hong Kong and Singapore.

Good governance is essential for the continuing success of the REIT, as the market places a premium on this attribute. The market needs to be made aware of the REIT’s commitment towards a strong corporate governance mandate.

Clearly the advantages and disadvantages speak for themselves and there’s no doubt that internal management is the favoured option around the world. South Africa is already following that trend it seems as emerging REITs are internally managed.

Green Construction – What’s left after the hype?

Green OfficesBack in 2011 regulations were put in place that officially launched South Africa into the world of green buildings. Of course there had been those who had pioneered a path years before but it’s since then that South Africa has chosen to walk in step with the much of the world on the green buildings front.  In fact between the 16th-18 of October this year will see Cape Town play host to the “Green Leaders for the World GBC Congress” at the 6th annual Green Building Convention.

Internationally much of the hype has died down and a vast body of people in the industry are knuckling down and getting on with the business of building better quality buildings. Many of those previously sceptical players in the building industry have realised that Green construction isn’t all that different from the conventional kind. Both need to be vigilantly organized and both need skilled labour to be brought to the table. The difference is that conventional construction doesn’t take the welfare of the environment into account nearly as much as green construction does. A building with certain green guidelines will even see construction of mechanisms whose sole purpose is to greatly reduce the overall impact the building has on the environment. Conventional construction often doesn’t have any such additional mechanisms.

images (35)Current technology facilitates buildings getting a significant allotment of their energy from clean/renewable sources. Green guidelines have the wherewithal to demand that a building receive a given portion of its energy from solar or wind power sources. The infrastructure for such energy delivery would have to be put in place during the early stages of construction.

Inevitably the issue of construction costs of green buildings surface regularly, but these have come down significantly, making green buildings more affordable. Dr. Prem C. Jain, Chairman – Indian Green Building Council says that in India the construction costs of a green building which is about 3-5 per cent higher for Platinum rated green building than a conventional building, the incremental cost gets paid back within 3-4 years with substantial reduction in operational costs.

The conventionally held view is that the initial or capital cost of energy efficient and green buildings is higher than that of other buildings. However, it is well established in studies done in the US, UK, Australia and India that when considering the total costs over the life of a building, including capital and operational costs, energy efficient and green buildings are typically more economical than conventional buildings. Specifically, the Intergovernmental Panel on Climate Change (IPCC) has noted that the energy consumption in both new and existing buildings can be cut by an estimated 30 to 50 per cent without significantly increasing investment costs with proven and commercially available technologies. The IPCC further notes that this potential for greenhouse gas emission reductions from buildings is common to developed and developing countries.

images (2)Some construction that follows international green guidelines merely involves using the most efficient equipment possible. Take central air conditioning for example; previously used units weren’t nearly as efficient as many of the units currently available. Certainly, a building could still be fitted with a less than efficient unit. Green guidelines, though, would most likely stipulate that the building be equipped with an efficient Energy Star compliant unit. Measures would have to be taken to ensure no leakage of heat from the building. A unit working overtime to keep a building at a desired temperature would defeat the whole purpose of getting an efficient unit in the first place. The best way to make sure heat doesn’t easily escape from, or enter into the system, is to make sure the building is sealed and the ducts don’t leak, which is best accounted for during construction- which is the whole point.

Coming back to South African standards: in 2011 government in South Africa put forward the National Building Regulations, SANS 10400 which includes requirements for energy usage in buildings. Now mandated, SANS 10400 is mandatory on all new buildings and major renovations requiring building plan approval.

Energy regulations such as SANS 10400 are important components in energy efficiency of buildings, and energy use equal to or less than that of SANS 10400 is also a minimum requirement for a Green Star SA rating. Extra points are then awarded in the rating system for exceeding the minimum requirements of SANS 10400X. However, Green Star SA goes beyond the requirements of only energy efficiency, addressing other environmental and human health impacts of buildings.

green-building1Furthermore, in its current form, SANS 10400X can only be applied in the design of new buildings and major renovations, and does not specify requirements for the operation or “in-use” phase of buildings – whereas Green Star SA rating tools are being developed for the operation or “in-use” phase of buildings. (Source: CIDB)

According to the Green Building Council of South Africa (GBCSA), an independent body, the country has seen a massive increase in the Green Star SA rating of buildings. Based on the Green Building Council of Australia’s Green Star rating system, it is the official green certification measure for buildings in South Africa, authorised by GBCSA. The first few examples of Green Star rated building in South Africa were; the Nedbank phase-two head office in Sandton;  Xenprop’s Ridgeside project in Umhlanga,  The Villa Mall, in Pretoria and more recently Standard Bank’s Rosebank Office. Many more have followed.

downloadA building development can receive either a 4-star rating signalling that it has employed “best practice”; a 5-star rating which recognises “South African Excellence”, or the coveted 6-star rating indicating that the project is a world leader.

Green guidelines are about trying to save energy and resources, with the ultimate goal of saving the environment. Towards that end, every little bit helps. The sample guidelines above are some of many new initiatives in the construction industry, many more come on to the table as this process rolls out. Time will tell how many were constructive and what failed to make an impact in drive for sustainability and the reduction of the carbon footprint.

Affordable Housing Lessons from Chile

imagesDespite both Chile and South Africa battling with the problem of housing, each country has its own unique circumstances, whether historical factors, political, financial or geographic influencing the character of their housing challenge in a singular way. To quote a specialist in the field – “There is no such a thing as a successful recipe which must be learned and then applied everywhere.” De Souza (2003). But this doesn’t stop South Africans learning a few lessons from Chile, among others.

Section 26 of Chapter 2 of the Constitution enshrines a citizen’s right to adequate housing. The South African Government in an effort to realise this right for all South Africans has built over 3 million subsidised housing units since 1994. Current estimates of the backlog stand at about 2.1 to 2.5 million units. It is estimated that approximately 12 million people were still without adequate housing.

Affordable housing is housing deemed affordable to those with a median household income as rated by country, province (state), region or municipality by a recognized Housing Affordability Index. (Bhatta, Basudeb (2010-04-15). Analysis of Urban Growth and Sprawl from Remote Sensing Data. Advances in Geographic Information Science. Springer. p. 23.)

In Australia it’s: “…reasonably adequate in standard and location for lower or middle income households and does not cost so much that a household is unlikely to be able to meet other basic needs on a sustainable basis.” As it turns out most countries in the world have their own tailor-made definition.

A commonly accepted guideline for housing affordability is a housing cost that does not exceed 30% of a household’s gross income. In Canada that’s 25% and India  40% for example.

chile049Chile had the first, and best known, example of a capital subsidy scheme for housing. It was first introduced in 1978, and was subsequently widely replicated by other countries in Latin America, for example, Costa Rica (1987), Colombia (1991), Paraguay (1992) and Uruguay (1993). South Africa’s housing subsidy scheme introduced in 1994 was also partially based on the Chilean model. There are problems with the capital subsidy model, but generally the experience of developing countries that have implemented this is that it has been considerably more successful than the public provision of housing in the past and that “the capital subsidy model  a la Chile and Costa Rica continues to represent current best practice” (Gilbert, 2004: 16)

The biggest weakness with capital subsidies and a good lesson for South Africa has been that the whole rationale behind choosing this type of easily-budgeted-for subsidy, as opposed to the open-ended subsidies associated with public rental housing, is generally to restrict government expenditure. As a result, resources allocated are generally inadequate, which means that too few subsidies are delivered and the subsidies are of insufficient size to provide good quality housing on well-located land. Only where housing has been made a priority and has been adequately resourced, as in Chile, has there been success in reducing housing backlogs.

Chilean housing policy is widely regarded as being successful: “Chilean housing policy is exemplary. It is meeting many of the goals set by all developing countries, such as bringing an end to the illegal occupation of land, providing housing solutions for all families that need them (including the poorest), and making basic services available almost to the whole population” (Ducci, 2000). Two of the many policy success stories in short are: sustainable allocation of resources and having a range of subsidy options and subsidy types. Worthwhile lessons for any country.

green_housing_onpageOn the down side Chile’s housing policy has been criticised for its many poor locations of its housing projects. For example on the edges of cities with it’s obvious transport and facilities shortages among other things.

Social Problems there are increased problems of violence and insecurity in the new housing estates and low levels of community cohesion and participation.

Lack of an integrated development approach: Due to a housing-only policy emphasis, there is a lack of economic activity in new housing projects – they are basically dormitory suburbs.



The dominating role of big construction companies in Chile has resulted in a lack of participation by communities, which in turn has resulted in new subsidised housing that sometimes does not meet the real needs of low-income people, especially in terms of location.

There has been government reluctance to evict beneficiaries for fear of a political backlash, so there are high arrears (over 60% of loans are in arrears of over three months); so many loans effectively end up being converted into grants (Rojas, 1999)

In South Africa on the other hand, challenges included a slow standard of delivery. Something Chilean homes are never accused of.  Homes have had to have been demolished or repaired due to poor workmanship. This is not only inconvenient for government and residents but causes demoralisation among both communities and local government.

It’s not news that ownership creates civic pride which ultimately raises the value of an area as people attend to their own homes. So encouraging a system where homes are affordable and not just as a result of a grant continue to be a worthwhile model to continue with down the road.

Typically Chilean

Typically Chilean

Integrated developments as seen in the Chilean challenge above are vital to avoid projects from becoming merely dormitory like nodes with no sense of community. Retail needs to be mixed into communities to encourage local secondary markets to thrive returning investment into the community.

Chilean official realised early on the need to meet with local communities. History has shown that target groups reject the final product when they are not consulted. Government feels the work they have done is unappreciated and thus consults even less. This vicious cycle results in civil unrest and endless delays in creating communities of affordable housing.

There seems to be conspicuous absence of any substantial dialogue and engagement between government and civil society around the shape and content of housing policy and its practical application.  In order for affordable housing to thrive in South Africa we would do well to learn from those who have pioneered the way before us. Chile has not got it all right but where they’ve done well we can learn from and where they have failed should be adequate warning for us.

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

mbombela-stadiumSo 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.

images (4)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 Mabida

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

images (4)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.

green-leaseIn 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.

green-lease1Over 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.

images (1)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

xlarge_chinopenPrivate 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

thumbTo 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

imagesThe 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.


2347746278It’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

isphingo_image_previewThe 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

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.

Catalyst Focuses on Real Estate in East Africa

Paul Kavuma

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

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

01SK85-IM1001-richards-bay-1475The 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;;;}

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.

Durban beach front restaurant facilities remain vacant.

Vacant Facilities - Durban Beachfront (courtesy IOL)

Vacant Facilities – Durban Beachfront (courtesy IOL)

Back in 2010 there were pessimists and optimists arguing it out over the potential embarrassment or pride at the outcome of eThekwini’s plans to pretty up the beach front and revamp its facilities for international guests coming to town for the world cup. The optimist won, projects were completed on time and even the pessimist were impressed with the outcome. But alas three years later there remains a big nasty wart on the pretty beachfront’s comely face.

Last month the sustainable development and city enterprises department tabled a report before eThekwini Municipality’s Executive Committee (exco). In short the report confesses that the tender process for the beachfront restaurant facilities has failed.

The report reveals that more recent interest in the facilities leaves potential tenants unimpressed and dissatisfied with the tender process. The two main bones of contentions being: 1) Experienced restaurateurs consider the unfamiliar process to be excessively complex and lacking engagement, whilst, 2) Large retail property owners follow the public tender route for the tenanting of retail space because tenant mix is never left to chance. Exco has now responded by planning to approach restaurateurs directly.

The beachfront restaurant facilities costs the metro R64 000 a month for maintenance and security. Unfortunately the facilities have deteriorated due to neglect and vandalism and now need to be refurbished.

It’s not like the facilities are poor or inappropriate. There is a reasonable range of amenities with small kiosk-like spaces that could accommodate tuck-shops and curio/beachwear businesses which go for as little as R1000 to R3000 a month, to potential high-end and franchise ready facilities with monthly rents ranging from R40k for 300sqm of floor space to R60k for 500sqm of floor space. Commentators in the industry aren’t faulting any of that.

However when examining these rents one ought to take into account that trading is generally only while the sun is up, from roughly 6am to 6pm. People don’t feel safe to come down to the beachfront at night. If the city wants to attract restaurateurs they are going to have to, cut the red tape, improve security, and bring rents down so they can make a profit and be willing to put their roots down.

There’s no argument about the Durban beachfront infrastructure – it’s world class. What’s required for beachfront restaurants to work is to get large numbers of people down en mass. Although the rents seem competitive compared to higher priced shopping centres, it’s the sheer volume of the foot traffic that a shopping centre can offer that compares.

There is something very discouraging to potential investors in local property and that’s a white elephant. In short the bureaucratic nature of the tender process is partly at fault for their empty structures and eThekwini will have to give potential patrons a reason to go to the beachfront at night for the facilities to seem viable to prospective restaurateurs.

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.


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.

Durban’s Playground Continues to Expand

An aerial view of the Natal Command site and surrounds.

An aerial view of the Natal Command site and surrounds.

The Durban Beachfront will never be the same as 2013 sees yet more changes to the landscape of the holiday city. A local Movie producer won his court case over the Natal Command headquarters last year and the Save Vetch’s Association called a truce with developers over water front developments recently. 2013 will see Durban’s playground getting a little bigger.

A legal dispute had been underway for over 9 years over the Army’s old Natal Command site, where many a young Durban man coveted a posting during his national service. In short the city sold the land in 2003 to local movie producer Anan Singh’s Videovision Entertainment, now Rinaldo Investments, for R15million. At the time the plan was to build a film studio.  The 21 ha of land is currently valued at R400million.

The dispute with Pietermaritzburg entrepreneur Sunny Gayadin has recently been resolved. This isn’t the only legal fracas in which Gayadin has been involved of late; he is also disputing the sale of a property adjoining the Pietermaritzburg’s Liberty Midlands Mall.

An aerial view of the Natal Command site.

An aerial view of the Natal Command site.

Durban ratepayers have been up in arms for some time about the neglect of the Natal Command site and the fishiness of the transaction.  The deal was criticised as being political, rate payers claim to have lost out due to the land not being sold for its true value. In the end the Constitutional Court made a unanimous, comprehensive judgement by the full bench of the 11 judges in Singh’s favour, dismissing an appeal against a decision of the Supreme Court of Appeal (SCA).

Right from the outset, apart from a film studio, a hotel has been planned. The land is perfectly positioned.  The site is across the road from popular Sun Coast Casino and near the Moses Mabhida Stadium.

The Singh’s Video Vision website reports that they would have to revisit plans for the site since some time has lapsed since the original concept. Some are speculating that an experience like Universal Walk in Universal studios or other theme park ideas could come to fruition. Singh has made it clear before how the project had the support of the city making it a viable option all along.  Tourism and entertainment will be the biggest spinoffs for the city.

Latest from Video Vision is that the development should take five to six years. At the time of the initial sale the development was reported to the press as R1.5billion. It seems no one is speculating as to how much the final cost will be.

The ratepayers association has made it clear that it has little confidence that the city could run such an operation and that it would be best if Singh just got the movie studio going, paid rates and created jobs.

There’s no doubt that a theme park would complement the current Beach Front Walk, Moses Mabhida Stadium and uShaka Marine World as well as the Sun Coast Casino.

This brings us to another dispute. The Durban Point Development Company (DPDC) an equal partnership with Malaysian based Rocpoint group and the eThikwini Municipality, the Save Vetch’s Association (SVA) and the Durban Paddle Ski Club have made a combined press statement to say they have “ceased hostilities” and have come to a compromise settlement on how the Vetch’s Beach is to be developed as part of the on-going Point Waterfront Development.

SVA and the Paddle ski Club fought the development on the basis that they believed it would shut out the community from the beach and destroy the diving reef. The compromise plan should save about 200m of the beach in question and still allow the DPDC to go ahead with its ‘super basement’ which will form part of the phase one of the development.  The new club site will have direct access to the beach, with 4×4 vehicles and trailers will be able to park on it. The public will have access to the beach and Vetch’s Pier with all the marine life remaining unaffected.  No hotel will be built alongside Vetch’s Pier. All categories of sailing craft will be able to launch, either from the beach or from a hard and sheltered slip-way. Not everyone is entirely happy but not everyone is entirely dissatisfied – such is compromise.

Developing Durban continues to be in line with the city’s claim to being South Africa’s playground. But not every development is easy to set in motion as the above investors have discovered.

Boutique Hotels -there goes the neighbourhood

Grand Dédale Country House

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

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

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

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. []

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. []

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

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

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

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.”




Rivonia and Sunninghill Suburb Profile

rivonia squareRivonia 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



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 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.



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)

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

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

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

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

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

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.


Riverhorse Valley Business Estate

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



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

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

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

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

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

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

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

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

Cromwell and Redefine Raise Funds in Australia

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

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

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

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

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

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

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

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

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

Redefine Restructures its VBG Portfolio

Redefine International

Redefine International

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

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

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

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

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

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

Greg Clarke

Greg Clarke Chairman of Redefine International

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

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

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

Serviced and Virtual Offices Take Off in Kenya

Kenyan Offices

Kenyan Offices

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

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

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

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

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

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

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

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

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

Basel3 – As Basel 3 Relaxes will Property Funds Grow?

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

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

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

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

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

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

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

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

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

University of Natal - Westville

University of Natal – Westville

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

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

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

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

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

Pavillion Mall

Pavillion Mall

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

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

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


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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

NRF’s Stores Magazine, consumers’ 10 favourite online retailers are 1.,,,,,,, 8.,,

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

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

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

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

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

Disaster Recovery Offering Value to Office Parks

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

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

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

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

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

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


Crowdfunding – Will South African Real Estate Bite



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.



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 “Crowdfunding is particularly suited to the African context because the amounts are small, thereby reducing the risk, and investors are not going it alone.” Projects in which “anyone can invest” could receive backing from outside Africa.

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

Barak Obama

Barak Obama

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

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

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

Confronting the Slumlords – Jo’burg Innercity Renewal

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

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

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

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

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

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

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

William Pudikabekwa

William Pudikabekwa

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

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


Parks Tau

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

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

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

Burger King Enters the South African Commercial Real Estate Market

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

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

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

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


Hassen Adams of GPI

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

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

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

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

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

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

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

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

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

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

Legal News on the Property Front

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

Wendy Machanik pleads guilty to theft charges

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cape Town – Making the City Work

Cape Town CBD

Cape Town CBD

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

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

Recent or current developments in the city include:

Cape Town Convention Centre

Cape Town Convention Centre

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

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

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

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

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

Port Side Building

Port Side Building

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

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

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

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

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

Cape Town City Hall

Cape Town City Hall

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

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

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

Unfinished Flyovers

Unfinished Flyovers

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

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

CCTV cameras - CBD

CCTV cameras – CBD

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

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

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

Golden Arrow Busses

Golden Arrow Buses

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

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

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

Hilton Buy-to-Let – Opportunity Knocks

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

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

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

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

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

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

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

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


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.

Orange Farm Steadily Moves out of the Darkness

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

Typical Orange Farm Dwelling

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

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

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

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


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

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

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

A sculpture of an orange picker beside the walkway.

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

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

The Bridge to Freedom

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

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

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

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

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

Veggie and Flower Gardens

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

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

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

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

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

Artist Impression of the Centre

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

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

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

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

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

Accra Mall Ghana

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Rael Levitt – the confession

Rael Levitt, courtesy IOL

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

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

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

{Source: Eyewitness News}

The Hawks, a Raid and Court Order

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

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

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

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

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

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

 Code of Conduct

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

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

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

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

Conflict of Interest

Tirhani Mabunda, courtesy IOL

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

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

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

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

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

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

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

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

Namibian Property Market – Open for Business

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

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

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

Windhoek CBD

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

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

The Maerua Mall

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

Wernhil Park with a facelift -artist’s impression

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

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

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

Windhoek International Airport

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

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


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

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

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

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

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

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

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

Swakopmund Schuller Strasse

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

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

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

The Grove

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

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

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

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

And who can argue with that.




Africa is the Next Big thing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 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.

Western Cape Tourism on the Offensive

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

There’s a new broom sweeping through Tshwane

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Are South African Hotel Rooms Oversupplied and Overpriced

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

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

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

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

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

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

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

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

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

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

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

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

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

BMW Beats the Banks

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

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

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

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

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

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

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

Watch this space for other motor finance houses following suit.

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

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

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

–          a 42,4% decrease in liquidations

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

(According to the FNB Property Barometer.)

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

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

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

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


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


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


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


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


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


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


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


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


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

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


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


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


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


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

Johannesburg Tariffs – More of the Same

Jo’burg Flickr

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

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

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

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

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

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

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

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

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

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

Johannesburg Tariffs

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

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

In the abovementioned open letter, an opposition party  expressed that the increases (Electricity) could have been reduced to “a maximum of no more than 10% across the board, except for domestic consumers above 2000kWh where a 16% increase could have been implemented, to fund the increases , the unaccounted for losses would have to be reduced accordingly by appropriate measures .” What those measures could be were not elaborated upon.

Coming back to rates, there is another side of the coin. The municipality may justify pushing up the rate randage in order to meet its demands because merely decreasing the rates could lead to the city being crippled financially.  This means that a process of reaching equilibrium is engaged. For example, where the property value has gone down, the rate randage is increased to compensate theoretically resulting in the ratepayer paying more or less the same amount.

Arguing the issue for the eThekwini Municipality in Durban, Head of Treasury, Krish Kumar said to the Daily News that while residential property prices may have gone down, commercial property prices may have gone up. This was taken into consideration.  He said the city wanted to avoid a situation where the municipal rates were based purely on the property prices because when the prices went up, the rates also skyrocketed. And when they went down, the city would not collect enough money and would fail to function.

Tariff Increases for four South African Cities

Tshwane Cape Town eThekwini Jo’burg
Electricity 12% 11.03% 11% 11%-13%
Waste Removal 25% 7% 7% 6.7%
Water & Sanitation See Separate Items 15% See Separate Items 5.7%-15%
Bulk Water Tariff 10% 6.5% 12.5%Res-15.5% Bus Combined
Sanitation 12% Combined 6.5% 14.5%
Rates 12% 8% 6.5% 6.7%

And what of non-payment? What is troubling is that while rates increase by 6.7% Jo’burg is expecting income to increase by 18%? The explanation for this by city spokesman Gabu Tugwana to the Star is: “What has been taken into account in that year-on-year is growth and tariff (which is limited to 6 per cent).” Regrettably, failure to pay by ratepayers is expected to increase.  Jo’burg’s budget for 2011/12 estimates  debt impairment at R1.76bn. In 2012/13, this is expected to go up 17 per cent to R2.05bn. Jo’burg’s adjusted budget for 2011/12 estimated debt impairment at R1.76bn. In 2012/13, this is expected to go up 17 per cent to R2.05bn then by 12 per cent the next year and 8 per cent the year after.

This brings up the issue of municipalities broadening their rate base. There is a need to look at Jo’burg’s indigent list and tap into those many RDP home dwellers who can afford to make some contribution.  If these communities are not engaged the culture of Apartheid days’ non-payment continues and a general culture of entitlement is fostered and the ratepayer base shrinks each year.

Tragically there just doesn’t seem to be the political will to pursue these options. Many would argue that the current rates model is based on shaky business foundations and is certainly not sustainable.  Regardless the Jo’burg ratepayers are going to have to fork out more this year.

Business Process Services/Outsourcing – a brave new world for South Africa.

To some Business Process Services may sound like yet another convoluted and ostentatious label applied by self-important people who may not otherwise be defined due to lack of substance, product or identity. Quite the contrary.

Business Process Services or Outsourcing, when it delivers, has the potential to genuinely lower administrative and operating costs, more quickly provide new services, improve customer satisfaction, and enhance focus on core business activities. Very simply, these

are the people that allow business people to focus on their core business whilst the likes of human resources, finance, accounting, contact centres. Document Management Services, Healthcare are taken care of by outsourcing to a third party


Without getting bogged down in detail, it’s sufficient to say that there are many divisions of BPS: there’s the back-office, like human resources; front-office, like call centres, there’s offshore and onshore BPS and even further breakdowns including IT based ITES-
BPO (Information Technology Enabled Service) and LPO – legal process outsourcing.

Looking at the big picture: the global industry is said to be growing by 40% per annum.  India is the world’s biggest player in the industry with revenue of US$10.9 billion from offshore BPS. It has a 6% share of the BPS industry in general but a 63% share of offshore BPS. On the other hand the South African call centre industry has grown by approximately 8% per year since 2003 and it directly employs about 54 000 people, contributing 0.92% to South Africa’s gross domestic product. Dwarf size compared to India but the potential is huge.


The South African Government’s upscaled Industrial Policy Action Plan (IPAP 2) has identified Business Process Services (BPS) as a key sector for investment attraction and job creation. The South African Government implemented a BPS or Business Process Outsourcing and Offshoring (BPO&O) incentive programme from July 2007. It is claimed that during the period July 2007 to March 2010, the incentive resulted in the creation of at least 6 000 new jobs and attracted R303 million in direct investment.


Since then, after negotiation with the private sector a further proposition has been made with the Monyetla Work-Readiness Programme, a dedicated investor friendly set-up process, and a

programme to improve industry service standards, in order to position South Africa as a preferred location for BPS operations.


Monyetla, which means ‘opportunities’, was launched in 2008 by the Business Trust, the Department of Trade and Industry (dti) and BPeSA as a pilot project to provide the unemployed youth of South Africa with employment through the BPO industry. The pilot project was a success story,  over 1,000 learners registered.  Due to its success the second phase was launched in July 2010, with 3,400 learners joining. Further phases continue to date. To become a certified employer of cho

ice on the project there are two criteria: Take on a minimum of 60 learners; and offer employment to 70% of them upon their successful completion of the programme. For every six learners employed, one team leader must be trained. So there’s a very specific outcome pursued here.


BPS leaders BPeSA,  Western Cape CEO Gareth Pritchard is reported to have said “With South Africa rapidly growing as a BPO provider both locally and abroad, it is imperative that we build our employee base, allowing South Africa to move from a reactive talent development strategy to a proactive one,” In the last decade, SA has built u
p a reputation as a world-class customer service destination that is able to deliver results for a number of the UK’s biggest brands, including ASDA, Virgin Mobile and TalkTalk.

South Africa has also attracted many top international call-centre outsourcers, including Aegis BPO, Fusion, Genpact, Stream, Sykes and Teleperformance, as well as IBM and Deloitte, which provide a variety of services in English, Dutch and Flemish for customers worldwide. Most recently, the Economics spokesman at the SA High Commission in London, Yusuf Timol, forecasted that there would be huge opportunities looming for capturing India-based BPO work in 2012 and beyond.


To emphasise whether South Africa has a future in this industry Frost & Sullivan’s business unit leader, ICT Africa, Birgitta Cederstrom says “Africa is increasingly popular as a preferred destination of contact centres; South Africa specifically has been a natural choice for contact centres due to its large and articulate English-speaking population and service-oriented business culture. Another strength is its expanding broadband connectivity, thus ensuring that the latest unified communications and collaboration tools will run efficiently.”


During Trade and Industry Minister Rob Davies’s Budget Vote in the National Council of Provinces (NCOP) in Parliament he said “To date, 23 applications for the BPS incentive scheme have been approved, potentially leveraging R4.1 billion worth of investment and 15 149 jobs over three years,”


“Close to 3 400 young trainees were trained under the second phase of the Monyetla Work-Readiness Programme, 70 per cent of whom were placed directly into employment.”  said Davies


This brings us to ‘where’.  A couple of years ago South Africa’s Call Centre Nucleus group was fully acquired by Aegis, India’s business process outsourcing arm of the diversified Essar group. The company purchased CCN as part of its st
rategy to invest R500 million in the next three years and create 5000 jobs in South Africa. Currently they are situated in two locations: Woodmead and Sunninghill, both in Johannesburg. The total seating capacity of over 1,300 seats.

Inc. (Nasdaq: ININ) is a global provider of contact centre automation, unified communications, and business process automation software and services.  Interactive Intelligence has more than 4,000 customers worldwide. In other words, a major player in the BPS world. Interactive Intelligence is about to occupy one of ATIO’s buildings in down town Johannesburg, which will now function as its regional headquarters serving all of Africa.


Amazon, America’s largest online retailer, has expanded its customer service operations into Cape Town, claiming to have created 600 jobs in its first two years of operation and an additional 400 seasonal jobs during holiday season.


A R125-million, 1 500-seat call centre integrating, training, office and recreational space has been constructed to enhance the global competitiveness of the Coega Industrial Development Zone outside Port Elizabeth. The Business Process Outsourcing (BPO) Park, covers five hectares and includes training facilities, lounges, a cafeteria and a restaurant, is the first of its kind in South Africa. The BPO Park is situated in Coega’s business service precinct, next to workers’ residential areas, and replaces a 200-seater call centre already in existence.


Then came Fusion, another world player in the BPS industry. Fusion Outsourcing’s headquarters, Fusion House at Century City, Cape Town; and the new Gauteng premises in the Johannesburg CBD are modern, state-of-the art contact centre facilities, from where  almost 1500 agents and support staff deliver customer services. In 2011 Fusion won the national industry awards for the 3rd consecutive time for both the Best Offshore BPO Centre of the Year, and the Best Offshore Customer Service Centre of the Year.


The market for such centres seems unpredictable. Anticipating the market for contact centres a while back, construction giant Grid, built a luxurious and state of the art built-for-purpose call centre in Mount Edgecombe next door to Umhlanga Rocks.  It’s fully occupied. On the other hand a cursory glance through the free on-line classifieds Gumtree, revealed an advertisement for “Call centre property to let or for sale in Kent Avenue, Randburg. Total GLA 6500m², 350 – 500 work stations, and 185 parking bays. Asking rental R60/m² net or for sale at R49 mil excl VAT if applicable. Available immediately.” So there are some surprises out there from a real estate point of view.


Not that long ago A 27,000sqm call centre in the Jo’burg CBD was sold, through a negotiated deal, for R97,5m. The seven-storey facility situated at Laub Street was sold on behalf of a major retailer and was snapped up by City Properties. The property was sold with a ten year triple-nett Edcon lease in place and in effect is a sale and leaseback transaction.


So it would be incorrect to say that BPS is not having an effect on property since they are definitely players in the market. But the extent that there is any ripple may call for some speculation.


BPS certainly is an industry worth monitoring from a commercial real estate perspective, currently as a growing number of international firms choose to set up shop locally and large numbers of staff will be required in specialised or converted to spec facilities.

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.



Is minus 24% the new property skim milk

The Rode report just threw a cat among the pigeons.  Erwin Rode and Associates, property economists and produces of what has popularly become known as ‘the Rode report’ have ruffled some real estate feathers with their latest missive. Rode says that although house prices will increase marginally in nominal terms, they are in real terms still overvalued by 25 per cent. Seeff, Rawson and FNB all weigh in on the response.

Seeff Property Services chairman Samuel Seeff believes the report to be ‘one-dimensional’ and sends the wrong message to the ordinary buyer. This on the heels of an upbeat press release, earlier in January, stating that “this is probably one of the best buyers’ markets in decades. First time buyers and those looking for a second property can now find value in the market not seen for years. Buying in a down market can be one of the smartest moves, the bargain deals won’t last. “

Rode on the other hand says that ‘Correction’ will take time and he therefore recommends renting for the next five years  as there is likely to be no significant capital growth over this period.

Seeff though is sticking to its guns. “In contrast to the commercial market, the residential market is driven by emotional needs”, says Seeff. “About 95 per cent of buyers are not looking for investment returns or rental income, but want a foundation upon which to build a life.” Seeff makes the point that regular buyers are aiming at acquiring a home either for the first time or to grow , or move closer to school or work.  “No value can be put on owning a roof over your head’s” says Seeff emphasising the investment in ones future and stability.

Other realtors have similar comments. Tony Clarke of Rawson’s property remarked that: “My prediction is no growth in real terms over the next year, two years, and thereafter slow growth starting at between 2 and 4% per annum. There is going to be a slow uptake in new development property entering the market, which from a first time buyer’s perspective will retain its value.”

Clarke points out that if one purchases property, rental on top of return needs to be factored in.  Clarke also questions Rode’s position that first time buyers would do better to rent for the next five years or so and invest the difference saved on a bond. The question Clarke asks is “Invest in what? What he (Rode) is not taking into consideration is the fact that a lot of properties are being sold at a distressed level which is rightsizing property values anyway because those properties are in competition with normal properties.”  Clearly it’s going to take time before distressed properties cease being dumped into the marketplace and bringing real growth prices down.

Historically, house prices have escalated around 15 to 20 per cent per annum between 2000 and 2007. According to the ABSA House Price Index, this peaked in 2004 at an average of 32.2 per cent. In the two years leading up to the global housing market crisis of 2007, average house prices rose by 14.95 per cent. Following the crisis, there has naturally been a significant adjustment with average prices now at levels last seen about four years ago according to Seeff’s earlier press release in January.

FNB’s House Price Index Report provides a more measured response by initially putting forward that its House Price Index showed a slight acceleration at the beginning of January, climbing from revised year-on-year growth rate of 4.7% in December to 5.6% in January. This is the highest year-on-year growth since August 2010.

However in real terms, the report points out that “the recent growth rates imply that real house price decline continues. Consumer price inflation for December (January not yet available) was around 6.1%, and a 4.7%. House price growth rate in that month translates into about -1.4% real decline.  This means that in real terms, the latest revised figures put the average house price in real terms (adjusted for consumer price inflation) at -15.5% lower than the peak of February 2008.”

And yet the report reveals that: “ our own FNB Estate Agent Survey had also pointed to a surprising slight improvement in residential demand in the 3rd quarter of 2011, and this is believed to have been feeding through into house prices with a mild lag.”

But what of Rode’s 25% overvalued statement? “This, we interpret to mean that it would require a very significant decline in house prices in real terms in order to get back to what Rode deems to be an ‘appropriately priced market’ that would be in ‘balance’ or ‘equilibrium.’” The report responds.

The FNB report posits that there may have been a little overreaction to it since Rode is not predicting a sudden price correction but rather a gradual decline over a few years.  The report goes on to debate the finer points of Rode’s methodology and technical analysis, tentatively discussing alternative criteria.

One can’t help feeling the conclusion is somewhat uncomfortable for the sombre bankers as they are left sitting squarely on the fence. The report concludes: “ So are house prices overvalued by 25%? We can’t contradict the statement. All we can say is that we believe that it is not possible to say.”  Isn’t that a little like the teacher saying “everyone’s special”?

But they do squeeze this in: “ while we have stated the belief that urbanization in SA should bring about significant long term increases in real property values,” you can hear all the realtors say ‘yay!’ “…we must distinguish between the long term, and the ‘shorter” term. The long term move to higher real property values doesn’t happen in a straight line, but rather in big cycles driven by shorter term fluctuations between supply and demand. And indeed, in the near term we are also of the opinion that real house prices will decline further.” You can hear the realtors say ‘ahhh!’

In the end, as has been suggested, the market is simply unrealistically priced. Rode’s report has challenged what might be wishful unrealistic optimism on the part of realtors as they try and boost the image of a depressed market, but they and others like FNB haven’t taken it lying down either, challenging the methodology of Rode’s otherwise respected report. The healthy debate keeps the industry honest and perhaps positively realistic in the outcome.


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.

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.


Urbanisation is slower than expected – but there’s no room for complacency

Over a hundred Years ago, it’s estimated that 95% of people living south of the Sahara were engaged in cattle nomadism, hunting & gathering, farming and fishing, leaving 5% of Africa’s population in urban settlements.  Prior to the growth of independence movements in the 1950s, 15% had become urbanised. According to UN figures of 2002 that increased to 37.2 with a projection of approximately 3.5% per annum the figure will look more like 45.3% by 2015.

There has been a mixture of dread and concern both politically and in sociological circles as to the outcome of the expected growth figures. Will Africa’s cities cope given that they have neither been built for such growth nor seem capable of accommodating increased infrastructure even if the funds were available?

So what do we make of some of the talk in research circles about urban populations growing slower than has been projected? In South Africa, Durban and Johannesburg have been bracing themselves for a tsunami of rural migrants only to find that there has been nothing like the rate of growth expected.

The late 80’s saw the scrapping of the Group Area’s act and the pass laws in general. People were allowed freedom of movement overnight. There was huge concern about cities becoming swamped. Johannesburg and other cities certainly have grown but not to the extent predicted while others haven’t at all.

In a paper published on the UN’s humanitarian affairs website it is opined that with little access to the formal job market, most rural people lack the resources to live in cities for long periods. They often maintain homes and families in rural areas and return there for marriages, burials and when they fall on hard times.

It seems this ‘circular migration’ is muddling the conventional assumption that Africa’s urbanizing so quickly. Based on latest census material there are more and more countries ‘urbanising‘this way. There are also more countries that are showing evidence of de-urbanisation.

In a paper released by the Africa Research Institute in February, researcher Deborah Potts, a reader in human geography at King’s College London, makes the case that the high standard of living and poor employment opportunities in African cities has created an air of economic insecurity in urban areas. The gap between rural and urban living standards has narrowed in some cases not making it worthwhile to venture into towns.

In South Africa for example Social grants for the elderly, children and the disabled can support a family living in a rural area where the cost of living is comparatively low. This has even kindled the growth of cash economies in some areas.

Then there’s what’s being termed ‘hidden migration’. It seems that many households have multiple locations given that some family members live in informal settlements and others at a rural location and there is movement between them. People keep moving until they find a reasonable standard of living.

Given that in South Africa’s case the previous census was over 10 years ago and figures for 2011 are still pending, there is a lot of guess work going on. However the Independent Electoral Commission uncovers a very mobile population, “People are drawn to areas of greater economic opportunity, but also where infrastructure and housing is provided”  says the commission.

Fears about urbanization can hardly be dismissed given that overpopulation has played a major role in the lack of basic services, high unemployment and a general sense of hopelessness and political dissatisfaction. High crime and service delivery protests are a worrying knock-on effect.

Interestingly there are other dynamics at play elsewhere in Africa. Local traditional authorities in some countries provide the stability of access to land. In such communities people are at least assured of the opportunity to grow their own food for the extended family.

An example cited by Potts is Malawi, a profoundly rural country. Due to the lack of jobs and the high cost of living in urban areas people don’t settle in the towns but rather engage in very basic subsistence farming in the rural areas.  Some remain mobile and move from place to place traveling, moving with the food as it were.

None of this suggests that sub-Saharan African villages and cities are dwindling. The urban population continues to increase, however so does the rural population. There is still a general move towards urban life, but it is a slow shift, not a tsunami.

Eduardo Moreno, head of the Cities Programme at UN-Habitat, says “It is very clear that urbanization is slowing down, and African cities are not growing as fast as they were 10 or 15 years ago. But when you compare it with Asia or Latin America, Africa is still experiencing the highest rate of urbanization of the entire developing world.”

The warning in all this, is not to become complacent. Although the floodgates haven’t opened and the cities haven’t been swamped to the extent anticipated, negligence of the country’s urban poor would be huge mistake. Expectations of those who seek better lives in the cities and towns have been largely dashed. People with nothing to lose are a powder keg waiting to explode.

This isn’t to be melodramatic; civil disobedience around South Africa is arguably at an all-time high.  But no country in history has been lifted out of poverty by remaining rural. China, in its five-year plans says that urbanization is its driver of development.

A hiatus in the urban growth rate should, if anything, give those in authority a moment to catch their breath to deal with maladministration and corruption so that improving infrastructure and creating jobs can be brought up to speed. If not we will reap the urban whirl wind originally feared.

Madonsela, Municipalities and Money

The impression one gets from press releases and other statements made by South African politicians is that the crumbling of local infrastructure and lack of service delivery is a recent phenomenon. But the writing has been on the wall for a long time. How will warnings today effect matters tomorrow. The on-going decline of municipal management does not bode well for investment, after all, what incentive is there. Then there is the likes of the Public Protector stepping in these days – is there hope?

You’ll be forgiven for thinking this is a recent statement: “The investigation has shown that South Africa has many instances of adequate municipal infrastructure and service delivery, but also an increasing proportion of deteriorating infrastructure, together with poor and often unacceptable quality of services.  Similarly, while some municipalities have exemplary practices in place in respect of many of the aspects of infrastructure maintenance, gross shortfalls in management policies and practice exist in many municipalities. “Such were the mild and restrained findings of a CSIR report in 2006.

Back in 2009 Traditional Affairs Minister Sicelo Shiceka announced that a grand turnaround strategy would be implemented in 2010 to improve national oversight of municipalities. “We want to build a local government that is efficient, effective, responsive and accountable” he intoned. After much huffing and puffing, think tanks, discussion groups, proposals, counterproposals, conferences, debates and many working lunches no doubt it’s uncertain what was actually done about municipalities.

By early 2011 a report was presented to the Cabinet by Finance Minister Pravin Gordhan on the attributes of municipal financial management and how it had discovered that at least 35% of municipalities in South Africa needed intervention from national government to carry them. By doing so, the intention would be, to try and snuff out unauthorised and wasteful expenditure.

The report was the most damning evidence yet. It recommended that urgent intervention was needed in at least 35% of municipalities because of poor financial management, weak governance and poor leadership.  The report revealed that 107 municipalities and two municipal entities accounted for R5-billion in unauthorised expenditure of which R1,1-billion had subsequently been written off. Moreover, 168 municipalities and 22 municipal entities had been responsible for irregular expenditure amounting to R4,1-billion.

The report noted that there was a “shocking” rise in the number of municipalities that are guilty of unauthorised, irregular or wasteful expenditure.

Back to 2006, to quote the old CSIR report: “It is clear that many municipalities will not be able to improve their maintenance policies and practices without strong direction and assistance from national government.  If municipal infrastructure maintenance is to be adequate, a great deal needs to be done.”

Enter Public Protector Adv Thuli Madonsela who on Wednesday 18th of April 2012 visited the Nala Municipality in the Free State province where she inspected a number of homes affected by a dysfunctional sewage system, a sewage pump that is not working and a purification plant that has not been working for weeks.

Madonsela’s responded to an invitation by representatives of residents complaining that their voices had not been heard by the Municipality or other state institutions. The focus: the failure to implement a forensic report conducted by a reputable private firm, in which several findings on maladministration were made and individuals blamed for improper conduct.

Madonsela revealed that despite a partial implementation of the report she would request information on the state of implementation of the rest of the report. It was further agreed with the representatives that the public protector would ensure full accountability by all persons implicated in the report, whether they were officials or office bearers in the municipality or service providers who allegedly defrauded the municipality by claiming and collecting fees for work not done.

After this various sites were visited including an unfinished RDP settlement, an open sewerage dam, a home still serviced by the bucket system and a broken sewage pump as well as a purification plant that has allegedly not been working for weeks. The Public Protector met with residents that had spontaneously gathered to hear from her and her team regarding her plans “to restore their dignity and ensure justice.”

In the press release was this much anticipated but often heard remark: “The Public Protector undertakes to work with the municipality, the province and national government to find answers and to ensure that services are urgently restored to the community.” Unlike many who have gone before her Adv Thuli Madonsela has an excellent track record for keeping her promises and doing what she says. Don’t mess with this Madonsela, ask SAPS.

But it’s a worrying state of affairs when the country’s Public Protector has to physically visit Nala Municipality down in the ‘Maize Triangle’ to set in motion a process that involves the intervention of the Freestate MEC for Human Settlements to restore basic services to a rural community that should otherwise be able to manage itself. How thinly spread do we want our Public Protector to be given the amount of defaulting municipalities we have.

From an investment point of view, we have an effective and willing Public Protector who is not above grievances brought by rural communities far from the ivory towers of high office.  But beware of where you put your money, earlier in the year a treasury report commented that local government finances had deteriorated significantly over the past four years and the “increasingly visible” failures were harming service delivery.

Municipalities are a vital conduit for service delivery, their lack of performance has resulted in political recoils, as seen in the run-up to last year’s local government elections. The report — on the state of local finances and financial management as at June 30 last year — said the slide in municipal finances had decreased, but they were still not showing signs of health and national and provincial government needed to mediate. Symptoms of danger included negative cash balances; the high level of creditors and debtors; the overspending of operating budgets and under spending of capital budgets.

A lack of service delivery has seen greater numbers embracing civil disobedience. With nothing to lose many people have taken to the streets in communities where there has been a breakdown of municipal services. A not so obviously apparent result of this is the flight of investment from these same communities. This does not fair well for property values in these areas either.

Currently, the news from Treasury is that only 30 municipalities (compared to 65 last year) had cash reserves in excess of three months and 114 (98 last year) had cash for less than one month. Municipalities consistently delay the payment of creditors because of a lack of cash. But maddeningly generous bonuses are still the norm, similarly so is the spending on a range of non-priority items and programmes.

The failure by mayors and councils to apply principles of good governance in their communities is destroying hope in the prospect of a rise in the value of property and the potential for attracting investment, ultimately the future overall value will diminish unless Adv. Madonsela and company represent a wave of high level activism heretofore unseen.


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.


The Port is Alive with the Sound of Investment

In one month President Jacob Zuma has opened Kwazulu Natal’s Dube Trade Port and the Eastern Cape’s Ngqura Port. But some of the biggest investment in South African ports is happening at the Durban Port.


National government has declared that it will spend R21billion on the infrastructure of the Durban port over the next seven years. This allocation is part of the R300bn of transport and logistics projects that President Jacob Zuma mentioned in his state of the nation address.


Even though Transnet has spent the last 12 years building the deepest container terminal in sub-Saharan Africa at Ngqura near the Coege Industrial Development Zone outside Port Elizabeth, this does not diminish the need to raise Durban port’s capacity to 5-million 20-foot-equivalent containers a year, from 2,71-million last year. Durban, Africa’s biggest container harbour, handled 61,7% of all containers that moved through SA’s commercial ports last year.  Shipping firms among other transport operators have been grumbling for some time about the inefficiency at the port.


The dug-out port project, south of the port, adjacent to the Durban’s industrial heart, was proposed nearly two years ago when options were being mulled over regarding the site of the old airport. It involves spending about R50bn in the first of four phases and was deemed necessary because economic forecasts showed the existing facilities would be inadequate.


Durban Chamber of Commerce and Industry CEO Andrew Layman said: “With a project of this magnitude, the sooner we get going the better. The issue of uncertainty bedevils investment.”


One project at the port which hasn’t been delayed is the R256m project to provide two more truck staging areas capable of facilitating 136 trucks, and a new four-lane dual carriageway, among other facilities, is 68% complete and is expected to be finished by July this year. This bound to bring relief to customers and truckers alike.


Also progress has been made deepening the berths on Maydon Wharf to facilitate large ships to use the berths for the first time and improve ease of navigation. This project, the estimated cost of which stands at R1,6bn when complete, is expected to be completed by year end 2014. Plans to deepen several container berths at the Durban Container Terminal on Pier 2 were well underway. The Island View oil and chemical product berths were undergoing an upgrade too.


It goes without saying what the knock-on effect is on other industrial and commercial property adjacent to the port or in the city in general as these developments progress.


Of course that’s not all that’s going on down at the port: Ranking as one of Durban’s largest leasing deals of its kind in the Durban port area, Growthpoint Properties Limited, the guys who bought the V&A Waterfront, has concluded a transaction with Bidvest Panalpina Logistics (BPL) for 20,767sqm of prime light-industrial space in Rossborough, near the Durban Port, in a deal valued at over R52 million.


Bidvest is a large consumer of Growthpoint’s commercial accommodation across the office, retail and industrial sectors. Similarly, Growthpoint is a major client of Bidvest’s services. It’s reported that the biggest challenge of the project was the timeframe. Construction of the redevelopment began in March this year for BPL to be fully operation by November 2011. Growthpoint’s industrial properties in KwaZulu-Natal are valued at nearly R1.3 billion with its entire portfolio in the province totalling some R4.2 billion in value.


Coming on the heals of the news that Mombasa and eThekwini are to be sister cities it’s encouraging to see the private sector, local and national government work as a team to keep Durban’s port and environs current. Looking into the future is going to secure the port’s role in the present as it play’s it’s role in the economy of the city and country as a whole.

Durban’s shouting: “Look at me, look at me, look at me.”

Look at me, look at me, look at me.


After the successful holiday season, Durban isn’t letting the limelight fade any time soon.


Durban had ‘a bumper festive season’ where tourists spent an estimated R1.2Billion offset against the R500 million spent by the city improving infrastructure. Since before the 2010 world cup Durban has been as industrious as an ant farm digging things up here, laying paths down there. New and renovated concourses. A flurry of new restaurants. Sprucing up the informal trading areas. Laying on the recreational facilities.


It seems like yesterday that the Durban streets were awash with green fingered types taking a break from the, what turned out to be, highly successful Cop17 conference – well, from an organisational point of view anyway, ahem.


But just when residents thought it was safe, the City eThekwini plans to host a R31million Top Gear festival in June.  It materialised early this year that the ANC-run municipality and the provincial government had signed a 3 year contract for the festival that is to arrive in Durban in June, with municipality and the provincial government expected to carry the financial burden. Oops Durbs is beginning to look like seriously high maintenance.


This comes in the wake of Auditor-General Terence Nombembe’s report for 2010-11, which showed that 364 tenders worth R126m were illegally awarded. Democratic Alliance councillor Tex Collins said the provincial government had signed the Top Gear contract without consulting the municipality. Apparently the event does not submit to the goals of eThekwini’s  integrated development plan. Alas there is simply no provision for the festival in the city’s budget.


Opposition parties are hardly shouting yippee at the thought of fast cars and all manner of techno-wizardry gracing the Durban shore. The DA’s Ronnie Veeran said councillors battled to find money for infrastructure in their wards, and asked how the municipality had found the funding for the event so readily. He also said that the tickets of R250-R500 were too expensive for the average Durbanite. The minority front suggested building a permanent race track.


At the end of the day ANC councillors played the familiar tune that the Top Gear festival was similar to the 2010 Soccer World cup or Cop 17 in that such events brought extraordinary revenue to the city, hotel industry and allied tourism industry. The event is expected to generate an estimated income of R35 000 000 in the City’s hospitality industry. R26 000 000 will be spent on local suppliers and legacy programme. How those figures are arrived at is little mysterious though.


Apparently the deal was struck in December last year and the city is bound by the contract – so all the debate is academic. It’s a bit like dad spending all the grocery money on booze – you might as well enjoy the party.


On a more constructive note though Durban’s place in the sun is keeping it in the public eye for a very green reason.   Pioneering the way for cleaner energy in South Africa, three partners have come together in a cutting-edge energy-saving pilot project. Durban is the city chosen in this project aimed at harnessing  the power of solar energy.


It’s called The Lincoln on Lake Rooftop Solar Project. The three main players are: Growthpoint, South Africa’s largest JSE listed property company; Hudu, a pioneer in the world of Solar Power and the world’s largest solar panel manufacturers Suntech Power.  Eskom naturally has a huge role to play to.


Growthpoint‘s Lincoln on lake on Umhlanga Ridge provided the location whilst Suntech and Hudu provided the solar panels and the installation. Eskom shared in the costs. The project is the largest photovoltaic installation to an office building in the province and represents a potential saving of 44kWs, which equates to some 87,000kWhs per annum.


The carbon saving is estimated at being around 89 610kg CO2 annually or 240 trees saved a year. “The latest innovations in the solar energy sector provide increased applications and effectiveness, as well as financial viability,” I-NetBridge quoted  Martin Viljoen, Managing Director of Hudu. “We are excited to be part of this resourceful project and to be a participant in the solar energy revolution that that is taking hold in SA.”


The pilot project has serious potential for application in buildings across South Africa. Durban has another reason to say “look at me.”


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.”

The Rode Report, “property is 25% over valued”

The Rode report just threw a cat among the pigeons.  Erwin Rode and Associates, property economists and produces of what has popularly become known as ‘the Rode report’ have ruffled some real estate feathers with their latest missive. Rode says that although house prices will increase marginally in nominal terms, they are in real terms still overvalued by 25 per cent. Seeff, Rawson and FNB all weigh in on the response.


Seeff Property Services chairman Samuel Seeff believes the report to be ‘one-dimensional’ and sends the wrong message to the ordinary buyer. This on the heels of an upbeat press release, earlier in January, stating that “this is probably one of the best buyers’ markets in decades. First time buyers and those looking for a second property can now find value in the market not seen for years. Buying in a down market can be one of the smartest moves, the bargain deals won’t last. “


Rode on the other hand says that ‘Correction’ will take time and he therefore recommends renting for the next five years  as there is likely to be no significant capital growth over this period.


Seeff though is sticking to its guns. “In contrast to the commercial market, the residential market is driven by emotional needs”, says Seeff. “About 95 per cent of buyers are not looking for investment returns or rental income, but want a foundation upon which to build a life.” Seeff makes the point that regular buyers are aiming at acquiring a home either for the first time or to grow , or move closer to school or work.  “No value can be put on owning a roof over your head’s” says Seeff emphasising the investment in ones future and stability.


Other realtors have similar comments. Tony Clarke of Rawson’s property remarked that: “My prediction is no growth in real terms over the next year, two years, and thereafter slow growth starting at between 2 and 4% per annum. There is going to be a slow uptake in new development property entering the market, which from a first time buyer’s perspective will retain its value.”


Clarke points out that if one purchases property, rental on top of return needs to be factored in.  Clarke also questions Rode’s position that first time buyers would do better to rent for the next five years or so and invest the difference saved on a bond. The question Clarke asks is “Invest in what? What he (Rode) is not taking into consideration is the fact that a lot of properties are being sold at a distressed level which is rightsizing property values anyway because those properties are in competition with normal properties.”  Clearly it’s going to take time before distressed properties cease being dumped into the marketplace and bringing real growth prices down.


Historically, house prices have escalated around 15 to 20 per cent per annum between 2000 and 2007. According to the ABSA House Price Index, this peaked in 2004 at an average of 32.2 per cent. In the two years leading up to the global housing market crisis of 2007, average house prices rose by 14.95 per cent. Following the crisis, there has naturally been a significant adjustment with average prices now at levels last seen about four years ago according to Seeff’s earlier press release in January.


FNB’s House Price Index Report provides a more measured response by initially putting forward that its House Price Index showed a slight acceleration at the beginning of January, climbing from revised year-on-year growth rate of 4.7% in December to 5.6% in January. This is the highest year-on-year growth since August 2010.


However in real terms, the report points out that “the recent growth rates imply that real house price decline continues. Consumer price inflation for December (January not yet available) was around 6.1%, and a 4.7%. House price growth rate in that month translates into about -1.4% real decline.  This means that in real terms, the latest revised figures put the average house price in real terms (adjusted for consumer price inflation) at -15.5% lower than the peak of February 2008.”


And yet the report reveals that: “ our own FNB Estate Agent Survey had also pointed to a surprising slight improvement in residential demand in the 3rd quarter of 2011, and this is believed to have been feeding through into house prices with a mild lag.”


But what of Rode’s 25% overvalued statement? “This, we interpret to mean that it would require a very significant decline in house prices in real terms in order to get back to what Rode deems to be an ‘appropriately priced market’ that would be in ‘balance’ or ‘equilibrium.’” The report responds.


The FNB report posits that there may have been a little overreaction to it since Rode is not predicting a sudden price correction but rather a gradual decline over a few years.  The report goes on to debate the finer points of Rode’s methodology and technical analysis, tentatively discussing alternative criteria.


One can’t help feeling the conclusion is somewhat uncomfortable for the sombre bankers as they are left sitting squarely on the fence. The report concludes: “ So are house prices overvalued by 25%? We can’t contradict the statement. All we can say is that we believe that it is not possible to say.”  Isn’t that a little like the teacher saying “everyone’s special”?


But they do squeeze this in: “ while we have stated the belief that urbanization in SA should bring about significant long term increases in real property values,” you can hear all the realtors say ‘yay!’ “…we must distinguish between the long term, and the ‘shorter” term. The long term move to higher real property values doesn’t happen in a straight line, but rather in big cycles driven by shorter term fluctuations between supply and demand. And indeed, in the near term we are also of the opinion that real house prices will decline further.” You can hear the realtors say ‘ahhh!’


In the end, as has been suggested, the market is simply unrealistically priced. Rode’s report has challenged what might be wishful unrealistic optimism on the part of realtors as they try and boost the image of a depressed market, but they and others like FNB haven’t taken it lying down either, challenging the methodology of Rode’s otherwise respected report. The healthy debate keeps the industry honest and perhaps positively realistic in the outcome.


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 31st 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 Mal