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To Invest (or Not) In Jhb Cbd? |
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To Invest (or Not) In Jhb Cbd?
Despite the recent building boom and the impact of rising interest rates on disposal income, South Africa has an insatiable requirement for affordable housing in an environment where demand outstrips supply. This has generated a constant demand for rental stock," he says.
"Building costs, particularly in the run-up to the 2010 World Cup Soccer tournament where the construction industry is under pressure to complete requisite infrastructure, will continue soaring. This offers opportunities for investors to acquire properties for rental."
CBD's offer double digit rental growth
He says the inner city areas, where significant investment into rejuvenation is paying dividends, promises investors double-digit rental growth in the medium-term. "This growth is enhanced by metropolitan initiatives for City Improvement Districts that offer investors tax rebates for renovating dilapidated buildings and restoring history to the inner cities."
In addition, council's endeavour to upgrade the city through projects like the Joburg 2030 smart-city initiative and investments spearheaded by Blue IQ are adding to the inner city's appeal.
Schaefer points out that even though inner city buildings have especially struggled with security issues, concerted efforts to improve safety and eliminate criminal elements have been bearing fruit.
"There is a significant demand for rented accommodation below R4 000 per month, adding further impetus to the buy-to-let market," he says.
Off-plan purchases popular
Schaefer adds that research indicates that a host of buy-to-let investors have been acquiring properties in new developments being sold off-plan, specifically those accommodating the middle-income market requiring properties below the R1 million mark.
"However, the relatively higher rents as a percentage of the purchase price means that inner city rentals have shown annual yields around 10% against 4 to 5% in more expensive suburbs," he says. "In the long term property has achieved an 8% annual capital appreciation against 3% dividend yields for blue-chip JSE-listed shares or 7,5% offered for money market or property loan stock investments."
According to John Loos, property economist for FNB's Commercial Property Finance division, the migration of much retail and office development activity from the CBD to the suburbs took place during a long period of economic growth stagnation spanning the late 1960s to the early 1990s. "Now, however, the economy is on an accelerating growth path and, with growing shortages of space in decentralised nodes, the CBD is once again coming to the fore," he says. "Johannesburg's CBD has in fact already experienced a significant residential and commercial property boom."
As a consequence of this decentralisation to the north, many empty commercial buildings came into being. This resulted in buildings being purchased and redeveloped cheaply in comparison to the development of new buildings in the north, with the inherent advantages of this scenario being passed on to the owner/occupier and investor in redeveloped or converted residential buildings.
Furthermore Loos believes that promising signs for the inner city emanate from looming changes in lifestyle, originating from mounting traffic congestion and a growing scarcity of land with suitable infrastructure. "This will necessitate a move back to the inner city," he says.
"Also on the increase over the long term will be the number of 'double income no kids couples', and for them the lock-up-and-go CBD-style living close to the workplace will become increasingly attractive as congestion gets worse.
"While seemingly having its roots predominantly in Braamfontein, the proliferation in better quality residential demand could move over railway tracks to the western part of the city centre.
"Increasing decentralised office space shortages, resulting in increased interest in CBD office space in years to come, will bring more jobs to the city and more purchasing power. The shortages will also ultimately support the growth in demand for residential living.
"In addition, the proposed development of a Gauteng government precinct on the western side of town should greatly increase the attractiveness of the area as a workplace and a place to live."
"Inner city property investment therefore has a fantastic future, especially in that it comes off a low base which means that in Johannesburg it is still not as expensive as Sandton and the likes."
Risky unless you know what you are doing
According to property economist Erwin Rode of Rode & Associates, every asset has a price, meaning that if properties are purchased at the right price, they will be worth their while as investments just about anywhere. "This is the simplistic answer though," he says.
"When it comes to residential property in Johannesburg's inner city, some developers, who are not wet behind the ears like City Properties from Pretoria, have been venturing in.
"Therefore I won't make the statement that residential won't work as an investment, but you really have to know what you're doing."
Rode is bearish about prospects for commercial property in Johannesburg's inner city. "The only viable commercial investment at the moment is retail on the ground floor," he says. "Offices are not viable as I don't see a net demand. I do however see office rentals moving up from a low base because there are few buildings left.
"And once again I go back to my initial point about buying at the right price.
Many sellers try to price in the potential for conversion to residential in Johannesburg's inner city, which makes office investments non-viable." |
Posted on Wednesday, May 16, 2007 (Archive on Thursday, May 31, 2007)
Posted by hayleym Contributed by hayleym
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