Real Estate Investor Magazine August 2013

Mega Trends In Commercial Property Shaping the future of investors SOUTH AFRICAN REAL ESTATE INVESTOR GET THE RIGHT FINANCE Jason Lee tells you how ENSURE YOUR RETURNS In a volatile economy COME OUT ON TOP With Africa investments www.reimag.co.za FREE OFFSHORE HANDBOOK August 2013 R50.00 (Incl. VAT) WINNER R43.86 Other Countries SAPOA AWARDS Best Printed Property Publication 2013 Z AUGUST 2013 www.reimag.co.za MASTER INVESTOR JT FOXX ad-v5.indd 1 11/28/12 3:18 PM

RELOCATING The iconic WesbankFairland development Joburg Property Company turns 13 in 2013 RENOVATING As an agent of the City of Johannesburg (CoJ) Metropolitan Municipality, JPC is contributing to the objectives of the Growth and Development Strategy articu- lated by the Mayor and by utilising council-owned land assets to leverage private sector investment in public infrastructure. The City of Joburg Property Company (JPC) services an opportunity to participate in the economic include: development of the World Class African City. • Management of council property portfolio • Selling and buying of property JPC Background RE-FINANCING • Facilities management The Joburg Property Company was established in • Property planning and advise 2000 and as the only mandated agency of the City • Property management of Johannesburg to manage and develop land and • Property development and facilitation property on behalf of the City. It currently manages • Property maintenance a property portfolio worth over R8, 8 billion with 64 • Property register maintenance 000 properties covering at least 39 000 hectares. • Letting/leasing of council property portfolio, Since the 1st of November 2012, JPC has merged including with the Facilities Management Unit and Metro • Outdoor advertising Trading Company, in effort to consolidate key • Servitudes, encroachments and access rights functionalities in providing excellent service delivery control to our stakeholders JPC Objectives Achievements COMMERCIAL PROPERTY FINANCE FROM BIDVEST BANK The JPC objectives are to harness the City’s property Since its inception JPC has been responsible portfolio transactions to increase economic growth for iconic developments such as the Orlando Whatever you have in the pipeline, get the specialist financial solution for commercial and Broad-Based Black Economic Empowerment Towers in Soweto, Soweto Theatre, the Newtown properties up to R50 million. And take your business where it needs to be. (BBBEE), while creating jobs and economic development, Huddle Park Golf Course in Linksfeld opportunities for the disadvantaged communities and most recently the Jabulani Precinct in the Email [email protected] and your personal consultant will contact you. and businesses. Jabulani CBD in Soweto. JPC does not use agents or brokers when leasing or Key projects selling property as legal requirements directs for an The Land Regularisation Programme is the frst of its www.bidvestbank.co.za open tender system that allows all interested parties kind in City history and unique to any major Bidvest Bank Limited (Reg No 2000/006478/06) is a licensed financial services and registered credit provider, NCRCP17. BlastBC 123414

The award-winning Soweto Theatre in Jabulani City in South Africa where the long term/leaseholders of property are given title to their homesand business places that were council owned. “The Land Regularisation Programme is unique to the City of Johannesburg, forming the basis of a sustainable property economy through expediting the transfer of properties to benefciaries, as well as releasing vacant sites on public tender,” says Ms Helen Botes, Managing Director of JPC. “Over the next three to fve years, the program seeks to transfer and/or release approximately 3700 properties in Alexandra, the Greater Soweto Area, the Greater Orange Farm Area, Ivory Park and surrounds.” Property Incubation The programme is aimed at transforming the property industry through accelerating the entrants of new players, especially SMME’s and BEE companies. JPC will identify, allocate and make ready for development a number of commercial properties that will be used to fast track the entrants of SMME’s and BEE in acquiring and sustaining property. Other key projects • Property Academy • Property Bulletin • Rissik Street Post Offce • Newtown Potato shed • Orlando ekhaya Redefning the Sandton skyline • Holocaust museum The Kgoro Sandton Development Tel: 010 219 9000 Email: [email protected] Website: www.jhbproperty.co.za

CONTENTS August 2013 COVER STORIES 8 Master Investor 12 Mega Commercial Trends 24 Get The Right Finance 42 Ensure Your Returns 54 Come Out On Top FREE Ofshore Handbook UPFRONT RESIDENTIAL COMMERCIAL 5 Investor Talk 22 To Gate Or Not To Gate 38 What’s The Secret Women, Nkandla & land reform Is community life for you? To commercial investment success? 6 INBOX 26 Your Success 42 Riding Out The Risks Ask The Property Experts Starts with the right fnance Of investment in a volatile economy Evictions 28 Buy-To-Let 44 Behind The Development 8 Master Investor Is it risky business? Process The world’s No. 1 Real Estate Coach Your journey begins here 30 Get Curb Appeal 12 Shaping The Future And your house will shine 46 It’s Not Just Window Mega trends in commercial property Dressing 32 Settling Disputes Listed investment takes home the prize 18 News Alerts What do the rules say? The Good, Bad & Ugly 34 Outstanding Municipal Debts Are you liable? INTERACT WITH US fnd us on facebook fnd us on twitter fnd us on youtube www.facebook.com/Real Estate Investor Magazine www.twitter.com/Sa_Reimag www.youtube.com/reimag 2 August 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

CONTRIBUTORS OFFSHORE RUI MARTO 50 Opportunities In The USA is the Director of Marto Laftte & Associates, he specializes in property, Don’t miss out commercial & consumer law. 52 Beat The Boom IVAN ZARTZ Invest in funds in Africa Is a sole practitioner with 40 years experience with a B.A. Degree from Rhodes University, and a L.L.B Degree from Wits University. 54 Getting To Grips With investing in Africa IAN ANDERSON Is the Chief Investment Ofcer at Grindrod Asset Management he has 15 years LIFESTYLE experience in specialist listed property portfolios. ALEXANDRA BURGER 58 Reviews Is the Director of Amicorp South Africa, with both brains and beauty, she is a fount What to look out for of fnancial & investment knowledge. 60 Welcome To Arabella SCOTT PICKEN You may not want to leave Is the CEO of IPS Invest & Wealth Migrate, he is an ofshore investment specialist. 62 The Wintell Whirlwind Rises JASON LEE Intel is back Has a BA LLB degree from the University of Cape Town & is a bestselling property 63 The Downsizing Dilemma author. Does it work? JONATHAN SMITH 64 Selecting Innovative is the Director of Courtwell Consulting, he has extensive experience in property Leaders For Success & education. Is a matter of consciousness TONY COLLINS Is a Commercial Property Valuer and Quantity Surveyor at Absa Capital Investment and Wealth bank & a well-known author. MARK BRADFORD Printed by Distributed by Is the Chairman at Jones Lang LaSalle for Sub-Saharan Africa. MONIQUE TERRAZAS Is a former winner of the Property Journalist of the Year at SAPOA, Monique is our treasured freelance writer. KOOS DU TOIT Is the CEO of P3 Investment group, he is an invaluable source of education and Published by information on investing in property. REALE MEDIA Neale Petersen (CEO) JOHN ROBERTS B. Taylor Is the CEO of The Just Property Group, he is one of the property industry leaders. Tel: 021 674 5026 Fax: 086 627 2400 Email: [email protected] THE TEAM Physical: Bizmall, Shop 3, Heritage House, 20 Dreyer Street, Claremont, 7700 Publisher - Neale Petersen | Editor - Angelique Redmond | Designers - James Clark & Amy Little Postal: PO Box 858, Howard Place, 7405 Ofce Assistant - Melissa Petersen | Trafc - Juanita Heilbron | Financial Manager - Marisa George Web Administrator - Russell Bennett | Sales Manager - Roy Lategan Advertising: 021 674 5026 Sales Executives - Andre Evens, Renier Lombard, Alex Masamuna, Marc Oppel & Themba Mateza Subscriptions: 0861 228 669 / [email protected] Distribution: On The Dot Distribution Also Published by REALE MEDIA For distribution inquiries contact Craig Hughes All rights reserved. No portion of this Just on 021 918 8659 / 073 395 2396 Where investment SOUTH AFRICAN REAL ESTATE INVESTOR Politics, Policy & Property © JUST PROPERTY MAGAZINE PROPERTY publication may be reproduced or used Printing: CREDA Communications and excellence meet in any form without prior written consent STANLIB Direct The road to a brighter future Spot Checks and permission from Reale Media. The What to look out for fnd us on youtube Property Investments BUYING PROPERTY? How will you be affected? Heavenly Tenants publisher gives no written guarantees or THE 2013 BUDGET Know the numbers How to fnd them RETIRE IN STYLE IRELAND & CANADA Rent killing you! Investing in Overseas investing www.youtube.com/reimag STANLIB Direct Property Investments manages the Liberty www.reimag.co.za retirement villages made simple How to save assurances and makes no representation Property Portfolio which owns the Eastgate Shopping Centre and is the majority shareholder of Sandton City. We are in the process of registering and launching the STANLIB African Direct Property Fund which aims to invest in retail-led real estate developments with a focus on opportunities in Nigeria www.justpropertygroup.co.za and Kenya. regarding any goods or services written or advertised within this edition. Prospective April 2013 R50.00 (Incl. VAT) R43.86 Other Countries ISSUE investors should always consult their APRIL 2013 LESSONS FROM A BILLIONAIRE INVESTOR 4 www.stanlib.com Autumn 2013 www.reimag.co.za Copyright © Reale Media Z attorneys, advisors or accountants www.reimag.co.za MASTER INVESTOR JANNIE MOUTON www.reimag.co.za www.reimag.co.za August 2013 SA Real Estate Investor 3

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INVESTOR TALK BY ANGELIQUE REDMOND Women, Nkandla & Land Reform Tis month is Women’s Month, a time to commemorate the freedoms we enjoy thanks to the brave women who refused to settle for anything less than equal rights! One particular property has certainly been making headlines: Nkandla. The long-awaited Nkandla documents have been made public and their political ramifcations will be felt in the 2014 elections. Te new Economic Freedom Front led by Julius Malema will TWITTER COMMENT certainly be making use of the giant white Nkandla in the room when it comes to trolling for votes. But will ThaboMakeng_88@SA_Reimag I really enjoyed the investigation article on buying the President’s sore spot be enough to see votes heading before you let. I found it very informative. the opposition’s way or does South Africa have a big enough rug for this to be swept under? Follow us on Twitter SA_Reimag Other breaking property news is the Expropriation Bill of 2013, which will allow the courts to decide the compensation payable for expropriated property. While this bill is better than its 2008 predecessor, it is certainly nothing to celebrate. Te FACEBOOK COMMENT issue of land reform hangs in the air, having been a key point in the State of the Nation Address, as the Restitution Amendment Bill, which will see land claims prior to 1913 open, has been passed by the Cabinet, according to rural development and land reform minister Gugile Nkwinti. Kerry-Leigh Crowson commented on Real Estate Investor Magazine Te property landscape seems to be on shifting ground and many are anxiously waiting to see Kelly wrote: \"Your new Ask The Property Professor page is really cool!” the outcome of the new Bills and regulations. But, whichever way you slice it, South African property remains a vibrant, ever-changing industry and one that ofers long-term wealth creation Like us on Facebook and fnancial independence in an economically uncertain time. http://www.facebook.com/RealEstateInvestorMagazine Happy Reading! Angelique Redmond EDITOR PUBLISHERS FOREWORD According to our Property Professor, Francois Viruly, a property boom occurs around every 20 years and each boom is always bigger than the previous one. We have experienced one of the biggest economic slowdowns in history, but the good news - according to Viruly - is that it is time to prepare for a massive upward trend - albeit a slow but sure one. Viruly’s real estate clock indicates that we have moved out of recession into recovery mode and now we are on a slow road to market expansion. Some of the key trends driving future growth include the massive urbanisation and industrialisation in areas such as Burgersfort, Lydenberg and Saldanha, which have become important future growth markets. Major transport trends, including the growth of specifc transport corridors in Gauteng as a result of Gautrain, as well as the MiCiti busses in Cape Town, are bringing massive changes to where people live and work. 2017 could be the year that we are sitting on top again, so prepare yourself to capitalise, otherwise you might miss out on a big party. Neale Petersen PUBLISHER The most diffcult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward. Amelia Earhart 1897- 1939 www.reimag.co.za August 2013 SA Real Estate Investor 5

INBOX Evictions Buy-to-let Commercial Renting Meyer de Waal Adrian Goslett Peter Collins Oosthuizen & Co Meyer de Waal Attorneys RE/MAX JHI www.oostco.co.za www.remax.co.za www.jhi.co.za Q Duarte Longuinho Asks: Q Julia Barnard Asks: Q Mike Ferrier Asks: After taking four years to get an eviction order When looking to buy a buy-to-let property, I am looking at renting a commercial building and executing it, the police ordered my body what questions should I ask before signing the and I want to make sure that I end up with a guards out the house after the eviction and the ofer to purchase? good deal, before I sign a lease what questions illegal occupiers were allowed back in, what do should I ask/ clauses should I have in the lease? I do? It’s for an ofce block. A Meyer de Waal Responds: A Adrian Goslett Responds: A Peter Collins Responds: After having obtained an eviction order from the As with any investment, when purchasing Te frst step is simple: do your homework! court at great cost, in the event of the occupier(s) a rental property, it is important to take Research vacancies of similar grade properties not vacating the property as ordered, the court your time and do your research to ensure in the area of your choice and periphery areas may further issue a warrant of eviction, which that the property you are buying suits your to establish the market rentals in the area. must be served by the sherif of the court. Tis requirements perfectly. Tis information is available from most major must be done properly, failing which the whole   commercial property management companies, process may be frustrated. The process to be Look at the property’s location. Tis is one of commercial brokerages and landlords, or you followed is the following: the most important factors to consider, along can consult the latest Rode Report to see what with the type of property you are purchasing.  the actual rentals are. Te owner delivers the warrant of eviction to the Te area in which the property is located will Also check the ratio of operational expenses sherif, together with instructions to give efect have an infuence on the rental income it can (common area security, cleaning, maintenance to the warrant. Te sherif, at his discretion, may generate, as well as the property’s long-term etc) which are passed on to the tenant, as well request assistance from the SAPS. When the appreciation. Neighbourhoods that are close as the rates and taxes for the property which are sherif evicts the occupiers, the owner (or someone to amenities such as schools and shopping also payable by the tenant. trustworthy on his behalf) must immediately centres will generally fetch a higher price. If Ensure that rentals are quoted at a “gross” rate occupy the premises, armed with his proof of you are unfamiliar with a development or which should include operating costs and rates/ ownership and all the legal documents, of which neighbourhood, it would help to speak to taxes. Parking rentals are quoted separately per the eviction order and warrant of eviction are the tenants or owners who are currently renting basement bay, covered and open bay. most important. Anyone (including any member and living there, as they will be invaluable in Carefully inspect the Ofer to Lease schedule of the SAPS or any other government body) who providing you with important information on which sets out the fnancial obligations of the then attempts to deprive the owner of possession the area. Te type of property is also important tenant for any hidden costs, eg storage rental, must then be confronted with the documentation as in some areas sectional title properties are refuse disposal, signage rental, additional and a refusal to vacate the property. The owner more popular with tenants than freestanding charges. Ensure that the total capital outlay, must have the number of his attorney at hand, to houses, for example. Tis difers from area to including the rental deposit, is within your phone him/her should it prove necessary. area. budget and afordability. Do you have a property question you would like answered by our experts? If so, post it on ASK THE EXPERTS on www.reimag.co.za or email [email protected] 6 August 2013 SA Real Estate Investor www.reimag.co.za

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MASTER INVESTOR BY NEALE PETERSEN Meet JT Foxx – The World’s No. 1 Real Estate Coach And yes, he is already making deals here in SA! 8 August 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

UPFRONT n meeting JT Foxx for the frst time I creating diferentiation and thinking diferently. was mislead into believing that he was J.T. teaches the same practical applications he Oan impatient young upstart who was all utilizes daily that actually get results in today’s talk and little action. Well I was proven wrong rapidly changing marketplace. Te bottom line is almost immediately thereafter, as the more I got his wealth techniques do actually work. to know him, the more I saw the diference he is making in the world. JT is the real deal and is J.T. is also the founder of Mega Partnering, clearly an action man who is making an impact the world’s # 1 Wealth Networking Conference all around the world by showing people to invest which takes place all over the world and features in real estate immediately. JT does not enjoy celebrities, industry leaders, millionaires, and idle note takers who will eventually take action ordinary people looking to do extraordinary instead he wants to help you to partner up and do things in today’s market. It is the ultimate WOW deals immediately. of conferences; as people from all walks of life JT FOXX get together, network and try and do business In a matter of 4 to 5 visits in South Africa over together. Personal Statistics the last 3 and half months JT has already made an Age: 33 impact here. He has already hosted a successful JT Foxx is highly regarded as one of the Top Achievements: In just 8 years, he Mega Partnering event in Johannesburg recently Wealth Coaches in the world not because of has already acquired and sold well for over 500 high quality people, and is holding his multiple successes in various industries but over 600 properties, closed over $50 real estate events around the world including here because of the results he has achieved for his million in real estate deals and one in South Africa but more importantly he is doing clients and students. JT and his highly qualifed of the highest paid wealth coaches the deals. coaches are full time entrepreneurs themselves in the world and also owns over 45 and know that their legacy is dependent on your companies and brands JT hails from Canada originally but now resides success. in the United States but spends most of his time Close-up his time doing real estate and business deals all JT has 8 personal coaches that he uses for the Mentors: George Ross, Donald Trump’s around the world. growth of his own businesses and endeavours. right hand man JT never makes any decisions regarding his Books: Billionaire Lessons for the Small Not everything has always gone JT’s way and businesses unless he runs the idea by all of his Investor he certainly was not born with a golden spoon coaches first. That is why he has made so few Hobbies: Golf and doing deals in the mouth. He was a considered a misfit, a mistakes in building his businesses. He says a Motto: The choices you make determine loser and troublemaker and a stutterer according wise man learns from his mistakes while a genius the reality of your outcome. The less to his introduction on his website. J.T. started learns from other people’s mistakes. Believing in excuses you have the more successful you investing with nothing more than a rusted out that statement fully, JT often ofers his personal will become. Success is all about speed of Ford pick-up truck, $974 dollars and one cheap coaches to his students when he feels they can implementation and your surrounding suit. In just 8 years, he has already acquired and help to take their lives and businesses to a higher yourself with people that are more sold over 500 properties, closed over $50 million level. JT’s philosophy is that “if it’s good enough successful than you. In the end you are in real estate deals. He has turned into a serial for him then it is good for you.” who you hang around with. entrepreneur and started several multi-million dollar companies all over the world. JT is also good friends with Eric Trump and George Ross Donald Trump’s right hand man He has also become one of the most sought who is his personal coach. He met them through after motivational speakers and is recognized his first appointment on ‘The Apprentice’ but as one of the top wealth and real estate coaches could not make the show due to unforeseen “JT Foxx is highly in the world. He did this all by mastering the circumstances. One day he arrived at Trump regarded as one art of partnering, branding, networking, and Tower in New York without an appointment. He marketing. managed to negotiate his way from reception into George Ross’ ofce. Te result was that George of the Top Wealth J.T. is the syndicated weekend radio personality Ross eventually became his coach. of the “J.T. Foxx Show” in the US and Canada Coaches in the Real estate investing is back and soon South Africa. JT’s real estate philosophy is a simple but practical world” Even though his recognition and success in one and it goes with one theme “Buy Below business, real estate and radio continues to rise, market value”, not difcult to understand even for J.T.’s true passion is coaching and reaching out the frst time investor. He says it is time to stop to those who dream of achieving their goals by learning and start doing. He wants to interrupt www.reimag.co.za www.reimag.co.za August 2013 SA Real Estate Investor 9

MASTER INVESTOR the entire real state seminar world and he says he JT approach’s to teaching his students to JT FOXX SAYS HE EQUIPS INVESTORS WITH best way to do that is to learn is to do deals. You invest is totally action based. Most property THE FOLLOWING BEFORE THEY INVEST need to know how to talk to them and how to guru seminars usually have people sitting in a deals. room the whole time, getting spoon-fed with 1 More knowledge than they ever outdated information and taking pages and imagined. 2 A predictable income blueprint. He says there are 2 types of real estate investors, pages of notes, and then what? one that works in their business and one that works 3 Predictable clients, leads and deals. in their business. He teaches anybody to work on He says all you did was kill a few trees and 4 Proftability from day one. their business invest in their local market. convince yourself that you must have got your 5 Skills to build the brand, grow the money’s worth because your hand is hurting so Many people’s wealth right here in SA and much. But the next day or two, you wake up, brand and negotiate masterfully. 6 the world was wiped out either through the and that’s when reality hits . Most real estate Mentoring to do live deals based global fnancial crisis or through following bad investors learn to be transactional where they on facts and statistics. investment techniques. Many people lost their learn “How” to make money in real estate 7 Holding yourself accountable. retirement and were foreclosed upon even in SA rather than focusing on the “Why”. 8 Learning how to get family support. where foreclosures were at an all time high here in SA. JT only spends around 10 minutes on a deal. 9 Learning how to grow partnerships While most so-called “experts” would debate with capital. 10 Real Estate was JT’s saving grace and he believes amongst each other whether it was a good time Becoming absolutely focused on it is the only business where you can amass a small to invest, whether there was a bubble, or if the goal. fortune without any of your money. He says that if the market had hit, I ignored all the talk and 11 Becoming more organised, efcient it were not for real estate investing, he would not simply followed Warren Bufet’s advice; “Up and in control. be the success and entrepreneur he is today. He or down market conditions are irrelevant. You has continued to invest aggressively for a number must create your own market.” RESOURCES of years. www.buyingbelowmarket.com



COVER STORY BY MONIQUE TERRAZAS Shaping The Future Mega trends in commercial property The world we live and work in is transforming rapidly, bringing about sweeping changes in the commercial property sector. We asked the experts in the commercial property industry to assist us in identifying the most important trends in the industry and found six mega trends that are shaping the future of the commercial property landscape. Six Mega Trends in Commercial Property 1. Efcient buildings 2. Future infrastructure development 3. Urbanisation 4. Technology shaping new consumer / employee dynamics 5. New hotspots arising 6. Expanding into Africa 12 August 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

UPFRONT 1. Efcient buildings of the Green Building Council of South Africa provide guidance and to implement action steps Te mega trend towards more efcient buildings (GBCSA) has not only highlighted the benefts on the full spectrum of green issues during the encompasses two distinct elements: the shift to of this trend but has helped the property sector construction and use phase of a building.” “greener”, more resource efficient buildings, as to align themselves with it. Over many years of well as a distinct move towards advanced facilities research across many buildings which we value He says the starting point is the acknowledgement management. Property owners and landlords on and assess, we have found a signifcant diference that during their lifecycles, buildings use a the cutting edge of this trend enjoy a competitive between the operating costs of standard and green significant amount of natural resources, and the advantage in a tough market: the ability to ofer buildings.” ‘use’ phase of a building’s lifecycle accounts for as tenants reduced operating costs and streamlined, much as 85% of its total impact on the environment. BUILDING TYPE STANDARD GREEN-BUILDING efficient building management that controls As a result, facilities managers have the opportunity OPERATING COST OPERATING COST ownership costs. (per square metre) (per square metre) to implement strategic plans for buildings under Regional retail R47 R33 - R38 management, partnering with landlords to compile Such a competitive advantage is particularly Community retail R36 R27 - R31 appropriate action plans in regard to energy savings important in the current market, with rising utility High-rise ofces R27 R15 - R20 - which in turn will efect savings for landlords as costs becoming a major issue for tenants, while Low-rise ofces R19 R12 - R15 well as tenants. owners also face property costs that are increasing Industrial mini-factory R14 R8 - R11 well in excess of infation rates. Property owners 2. Future infrastructure development will soon also face a new cost challenge: carbon Source: Courtwell Consulting Government’s focus on infrastructure tax. development will also significantly change Smith adds that while this trend is most the landscape of the country. Property Given that buildings contribute 38% of all noticeable among premium listed and private owners and investors will do well to take human greenhouse gas (GHG) emissions, the equity property funds, smaller property funds note of the long-term effects these new property industry will be among those industries can become part of the trend towards greener infrastructure developments will have on the most afected by the introduction of carbon taxes. buildings by taking cognisance of the information spatial development of cities and rural areas, And, as buildings consume some 40 - 50% of published by the GBCSA and engaging particularly in relation to mass transport. the world’s energy, commercial property owners professionals aligned to green principles. will certainly feel the impact of carbon taxes Faced with rising fuel costs, ongoing trafc directly as Eskom passes the carbon tax imposed Similarly, facilities management is rapidly congestion and the proposed new tolls, on it through to the end users, at an estimated emerging as a key contributor to containing Johannesburg’s business sector continues to 5c/kWh. Even if landlords pass this additional costs and achieving savings – while enhancing focus on ofce accommodation which enables cost onto their tenants, the repercussions can be the value of commercial property. According tenants to meet their requirements for secure, signifcant in a tough rental market. Commercial to Marna van der Walt, CEO of Excellerate quality space coupled with convenience of property developers will also be afected in terms Property Services: “Te integration of efective location for easy access for staff and clients, of building materials – notably cement, on which facilities management in the commercial property says Jonathan Klimek, leasing and sales broker the carbon tax cost will be an estimated R1.50 to sector has an increasingly relevant role to play, not for JHI Properties in Gauteng. “Increasingly R3 per bag, depending on the grade. only in addressing energy saving, waste recycling we see that the emphasis, particularly among and minimising the use and pollution of water, businesses with a large staff complement, is Given these realities, the generally accepted but also in regard to green issues during both on buildings situated in convenient locations three to fve percent premium on building a fve- the construction and use phase of a building. with good infrastructure and access to public star green building, as well as the costs involved By reducing operating costs landlords have the transport. Tis is becoming more evident amid in retrofitting existing buildings with resource potential to achieve a higher rental rate while rising fuel prices and the proposed toll system,” efcient technologies, is certainly starting to make keeping the tenant’s occupation costs unchanged he says. fnancial sense. and also helping retain tenants.” Johann Boshof, MD of JHI Properties says: “Te additional capital outlay to develop more “The current emphasis where facilities “In the industrial property market, transport energy-efcient buildings, or to convert existing management can add significant value is in issues are having a significant impact on the buildings, is recouped within the frst two to three helping property owners and tenants to address choice of location, and easy access to major operating years and, thereafter, landlords, tenants wasteful and unnecessary practices which transport routes are even more imperative bearing and the environment beneft from the savings in have a negative impact on the environment,” in mind high fuel costs and Gauteng’s e-tolls. costs and emissions,” comments Jonathan Smith says Sulayman Abdullah, CEO of Excellerate Certain nodes remain sought after, especially of Courtwell Consulting. “Our fndings are that Facilities Management (EFM). “Tis provides traditionally popular industrial areas with good property funds and major developers are including a tremendous opportunity for the astute facilities infrastructure and access to transport routes.” as many green features as possible within their new manager. Action steps with regard to energy and existing buildings and that tenants are acutely saving, waste recycling and minimising the “Public infrastructure development is a aware of the benefts of housing their businesses in use and pollution of water are simply no longer recognised economic stimulant for private sector a green or semi-green building. Te establishment sufficient. Facilities managers are expected to investment in an area. Tis is particularly www.reimag.co.za www.reimag.co.za August 2013 SA Real Estate Investor 13

COVER STORY true in the property development sector. The Barrow Group believes that rapid working from home a very real possibility, with Although there are a number of other factors urbanisation offers great opportunities for employees working remotely while maintaining such as location, population, catchment area and property development as the influx of people communications via email, Skype and mobile. a local economy, strategic public infrastructure generates greater commercial activity which In our experience, it results in an immediate rise investment can stimulate development in the then drives the demand for retail, industrial in productivity, as employees avoid spending medium and long term. A case in point is the and commercial ofce space. “However, other hours in the trafc and are less involved in ofce Gautrain, where commercial nodes around the pressures arise in managing growing populations politics. Secondly, it has spurred the development Gautrain’s stations have seen intensive mixed- in confned urban areas,” says Barrow. “Improved of mixed-use precincts, such as Melrose Arch and use redevelopment taking place in the immediate public infrastructure and facilities are needed the V&A Waterfront, although the opportunity areas around the stations. Proximity to the to handle both the growth and densification for commercial property developers is to establish Gautrain stations has been a major component of the urban population. Decisive and positive middle-class mixed-use developments so those of the demand for ofce space in the areas close government involvement in the provision of within the LSM 5 - 8 range can live and work to the stations,” comments Paul Barrow of Te adequate baseline infrastructure and services is within close proximity as well,” comments Smith. Barrow Group. needed to provide a stable economic setting in which property development in the private sector Courtwell Consulting believes that this According to Courtwell Consulting, while can fourish.” trend will change the dynamics of commercial government has in recent years announced property, as offices become meeting venues several infrastructural upgrades, the roll-out Coutwell Consulting notes that the most recent rather than production venues, with extensive of the entire programme seems to remain very census conducted in 2011 indicates that the rate environmental benefts. slow. “Unless government employs more skilled of urbanisation locally – especially within the decision-makers within its ranks – a process greater Johannesburg and Cape Town precincts It is already happening - traditional ofces are which in itself will take several years – the - is of such signifcance that this mega trend has morphing into new concepts as employees are implementation of its ambitious infrastructure been underestimated by a long shot. increasingly mobile, the trend of Bring Your plans will be thwarted by the lack of skilled Own Device (BYOD) reshapes how offices are personnel,” comments Smith. “Tis means that “From the available statistics, it is immediately configured and furnished, and office sharing infrastructural roll-out could remain very slow evident that Gauteng is the most attractive becomes popular. for at least fve years to come which will, in turn, economic destination in South Africa, followed by curtail our private sector’s ability to establish and the Western Cape, and that our largest population Te ofce sharing trend is evident in the results grow new nodes. Our private sector can, however, group consists of children. As urbanisation from the Global Coworking Survey, the largest anticipate eventual infrastructural roll-out by continues, therefore, more children will reside in annual authoritative survey around ofce sharing, building land banks of virgin land surrounding and near the economic hubs. They will require which noted an 83% increase in the amount of the intended roll-out areas and, as time and funds housing, schooling and tertiary education. Tis ofce sharing spaces compared to 2012. In line permit, procuring the necessary town planning creates an obvious opportunity for commercial with this workspace revolution, Cube Workspace and development rights, so they are ready to act landlords to develop private schools and colleges has announced two more multi-million rand when new infrastructure comes on stream.” and to encourage the establishment and housing investments in Woodstock, Cape Town and of small businesses in the secondary and tertiary Bryanston, Johannesburg in 2014 on top of an “When looking at the nodes around the Gautrain business sectors.” existing R82 million spent in providing fully stations and the impact this recent infrastructure serviced ofce villages in the Cape Town CBD development had on property prices, we observed According to Lightstone, a related trend that is and in Kyalami, Gauteng. Tese contemporary, that when combined with an already positive buoyant internationally apparent is the move towards urban custom work environments provide convenience market, new infrastructure had a positive effect and regeneration and renewal. “South Africa is no as well as economic benefts to business owners, that these areas outperformed the surrounding areas exception. If urbanisation happens in conjunction who can save up to 52% on their operational costs when comparing price per square metre. But in other with successful urban renewal projects it can pose by lowering overheads through sharing amenities areas, the infrastructure development did not translate a unique opportunity for property investors if they such as a welcome area, group receptionist and into the same outperformance. Property investors can invest ahead of the curve,” comments de Kock. ofce concierge, as well as state-of the art meetings should therefore evaluate all the other factors that will facilities and canteens, and enjoy the cost benefts interact with the new infrastructure development 4. Technology shaping new of a combined utility bill for electricity, Internet, consumer/employee dynamics when making investment decisions,” cautions Paul- air-conditioning and telecommunications. Roux de Kock, Analyst Director: Lightstone. As advances in technology changes the way we work, play and shop, property owners and investors On the other hand, The Barrow Group notes 3. Urbanisation need to understand the longer-term implications a requirement for smaller office space in the Te fast-growing middle class is quickening the for retail, industrial and ofce property. A-grade sector. “Not many developers cater for trend to rapid urbanisation across Africa, and this, however there’s a demand among many well- the infux of people into the cities not only poses According to Courtwell Consulting, established smaller businesses to entirely lease an major challenges for authorities, but will also this mega trend has created two noticeable ofce building for themselves alone, to give them signifcantly alter the urban landscape. opportunities. “Firstly, this mega trend has made a presence that is not diluted by sharing with other 14 August 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

UPFRONT companies. Some older ofce buildings that were configurations which enable the most effective development of a number of new transport designed for a single tenant are currently being utilisation of space. corridors, open up opportunities for commercial divided because it reduces risk and increases the development in the surrounding areas, creating likelihood of fnding tenants sooner.” But technology is not only driving change in the new investment hotspots. While Johannesburg was ofce market. Online shopping and omni channel traditionally regarded as the investment hotspot and Te new “live, work” concept is driving mixed- retailing is changing the face of shopping centres, the business hub of Africa, this is changing as cities use environments with secure residential estates as well as industrial properties such as warehousing such as Cape Town and Durban, and even areas and ofce parks developed together in lush, green and distribution. such as the Eastern Cape, step up their game to ofer spaces. “As the pace of life seems to relentlessly investors some interesting alternatives. gather momentum, traffic congestion persists “Shopping is evolving rapidly,” says South and time is a highly valued commodity, the trend African Council of Shopping Centres CEO Courtwell Consulting notes that these new corridor towards living in close proximity to work continues Amanda Stops. “Malls and shops are becoming developments act as a catalyst for other new real to increase. In line with this, says Klimek, more showcase and less stockroom. Imagination estate development, which typically follows the businesses are placing a growing emphasis on and innovation are driving the latest advances nodal development pattern detailed below. providing a secure work environment in pleasant in the competitive and A catalyst presents property development opportunities and easily accessible surrounds for staf and clients. changing retail landscape.” This is also evident in the “We are seeing a new trend towards a lifestyle global trend towards a where one can reside in a lush and secure residential new retail paradigm: omni estate or area but with offices in an equally channel shopping. The Limited residential development then follows appealing, leafy environment close by. In this way growth of retail ecommerce the live, work concept is not limited to the more continues unabated with densely inhabited urban areas but is transported global sales exceeding $1 Limited social development (including schools, medical centres and places of worship) to a more tranquil environment ofered by ofce trillion in 2012. While parks with sprawling lawns, landscaped grounds South Africa lags behind and soothing views – away from the hustle and in the online retail stakes, Retail development follows bustle of busy city life with its heavy trafc and as vast numbers of local constant noise,” says Klimek. consumers use the Internet as a storefront to look at the The Barrow Group concurs: “The demand products they wish to buy, for ofce space in decentralised, safer and more but still purchase in store, More extensive residential developments are then practical upmarket suburbs continues, and is a global ecommerce is growing phenomenon. Proximity has always been rapidly locally and experts crucial and continues to be so. The demand in predict a shift in its favour More extensive retail development then becomes feasible Bryanston, where lower-rise ofces are the norm, by 2014. is to be located in a hub that has easy access to the Examples of new transport corridors which have surrounding residential area. It’s about working in And as online retailing grows, so will the given rise to new property hotspots include the close proximity to where you live.” demand for distribution and warehousing Gautrain corridor; the road link network between space. JHI Properties are already reporting an Pretoria and Nelspruit; the road link to Richards Selwyn Sharon, leasing, sales and investment encouraging trend evident in the commercial Bay along the north coast of KwaZulu-Natal; and broker for JHI Properties, comments: “Looking property market: an increasing number of the Rustenburg Rapid Transport system. Te new back over the past two decades, it’s evident that enquiries for distribution and warehousing space. King Shaka airport on the north coast of KwaZulu- requirements for office accommodation have Klimek notes: “A noticeable trend of late is a Natal, as well as the proposed iDube trade port (in changed considerably. Businesses want to be concerted drive among larger distribution users line with international development trends) and located in a pleasing environment with secure to modern, dust-free space with good lighting, all associated the multi-billion rand Wewe Driefontein parking for their staff and clients. Considering of which is conducive to the storage and handling mixed-use development, is considered the most that these days, many people spend a great deal of of goods. However, this is coupled with the key signifcant catalyst for future property development time at work, often outside what were previously imperative of being well positioned and easily in the area. considered conventional working hours, these accessible to key transport routes and of-ramps, added comforts become even more important in as this has a signifcant impact on travel time and Durban itself is also being recreated to become again retaining quality staf.” transport costs - all critical factors in terms of the beautiful and vibrant beachfront destination it logistics. Tey also seek generous yard space, for once was – following a multi-million rand investment Klimek adds that a growing desire for cost ease of handling and transportation.” and intensive focus from the eTekwini Council. efficiencies may see businesses increasingly gravitating towards refurbished buildings 5. New hotspots arising Many new opportunities will be opened by future or modern buildings which allow flexible Infrastructure development, including the planned transport and infrastructural developments www.reimag.co.za www.reimag.co.za August 2013 SA Real Estate Investor 15

COVER STORY between Durban and Johannesburg, such hotspots or precincts may grow from natural town “Some of the major players have developed a as the development of Cato Ridge on the planning parameters such as Rosebank, Newtown model for retail developments in African countries eastern coast as a dry port; the construction and the Johannesburg CBD, but it could also be which combine fnance, construction, shopping of a dug out at the old Durban airport site; consciously superimposed on an area, such as centre development and tenant mix strategy and the extension of commuter rail network to Melrose Arch, Canal Walk and Century City. are able to replicate this model with relative ease. reach Pietermaritzburg; the development of It may arise from a particular requirement, for Nevertheless, it remains a very difcult market to Harrismith as a logistics hub and the setting up example, student accommodation in proximity to enter for small to medium landlords, as the initial of several logistics hubs throughout Gauteng. educational facilities, such as in Braamfontein in capital required is very high and a single act of Johannesburg and Hatfeld in Pretoria. Or it may corruption can claim one’s investment overnight. In addition to being a renowned tourism arise from an assembling of land opportunities or Te opportunity for small to medium investors, destination, Cape Town’s reputation as a global the purchase and redevelopment of old properties, therefore, lies in approaching the existing players business destination is being boosted by the new but with a central vision and the creation of a and becoming equal partners - under a watertight IRT (Integrated Rapid Transit), a major expansion unique identity. Very often the development of a and soundly-drafted joint venture agreement - of the highly successful Cape Town International hotspot is driven by developers who recognise the which permits a buyout in time to come.” Convention Centre, a host of urban regeneration potential positive aspects of a precinct and that projects as well as the city’s infrastructural development land is earmarked and gradually While there are diferent types developments, investment in new fbre optic cabling which will triggered by incoming trends. the big focus in most of Africa is retail. In response make Cape Town a top technologically attractive to the great demand for formal retail, the best base for new business ventures and will encourage 6. Expanding into Africa formats in Africa currently are convenience centres further investment in the city’s CBD. Africa is undoubtedly the new investment with small lifestyle components ranging from 10 frontier. Africa’s population of 1 billion people, 000m² to 30 000m² and a focus on basic needs In the Eastern Cape, Coega is attracting business and along with those in China and India, will - food, furniture and clothing. Some markets to the region. Outlying towns in the Eastern Cape comprise 56% of the global population by 2050, are seeing an increasing introduction of leisure such as Sterkspruit, and Mthatha and Tsolo in with young people dominating. Poverty on the components and luxury offerings as consumers what was formerly known as the Transkei, are continent has also fallen, so consumers have more become wealthier, more sophisticated and tastes experiencing an increased demand for retail space, money to spend. This new African consumer evolve. reports Amanda De Lange, portfolio manager market presents the business opportunity of the of JHI Properties, based in Port Elizabeth. “It future as some experts expect African consumer South African retailers, notably leading retailers appears that national retailers, who may perhaps expenditure to rise to US$1 trillion by 2020. including Shoprite and Massmart, recently have saturated the market in major centres, are acquired by Walmart, are driving commercial now looking at outlying areas with potential,” says Given the many challenges the country currently development in Africa. As they expand so does De Lange. faces, the focus in Africa no longer falls on South the need for retail and ofce space in cities across Africa. Many retailers, developers and landlords the continent. “All this provides many value creation are looking north to new opportunities in African opportunities for investors in the property sector countries with exciting growth rates, rapidly Te retail boom across Africa is also driving the but, where long-term proft and value remain the growing middle classes and fast expanding cities. demand for distribution warehouses. During a motive, it is imperative for us to ensure that our According to RMB’s Global Markets Research presentation to a recent global retail conference in fnancial models are accurate,” comments Smith. Report ‘Where to Invest in Africa 2012’, the London, organised by the International Council “Also remember that private sector participation four most attractive investment countries on the of Shopping Centres (ICSC) and Thompson in nodal development is the significant factor continent, based on market size, market growth Reuters, Belinda Clur, managing director of Clur that eventuates its success. But while public sector and operational ease, are in North Africa - Egypt, Research International, said the demand will involvement is necessary to facilitate harmonious Tunisia, Morocco and Libya. accelerate, based on business feasibility studies township development, the private sector is the she has conducted in Africa and interviews with source of both capital and skill, the two injections Courtwell Consulting notes that while both a spread of retailers, shopping centre and hotel which real estate craves.” expensive and risky, property development within investors and shopping centre service providers in Africa remains a defnite mega trend. “My own the rest of Africa. This trend is also being fuelled by the consultancy interacts on a weekly basis with rejuvenation of decaying suburbs and the creation African countries enquiring about local companies While there are many tough challenges in of vibrant, thriving nodes within city areas. who wish to participate in developmental ideas Africa, such as the lack of proper land registries in “Obvious success stories include Maboneng across Africa. Te recession of 2008 and 2009, as many countries, which makes it difcult to acquire Precinct and Melrose Arch in Johannesburg, well as the subdued investment climate that has land for new developments, as well as the vast work Century City in Cape Town, Gateway’s Newtown prevailed since then has, of course, dampened this that remains to be done to improve the business centre in uMhlanga, KwaZulu-Natal and St spirit extensively, but countries such as Namibia, and economic environment and transparency Georges Mall in Cape Town’s CBD,” comments Ghana, Mozambique and Kenya actively seek levels across the continent, South African property David Reid, investment sales broker for JHI South Africa’s involvement in their commercial developers will soon face stif competition from Properties in Gauteng. He adds that these new property environment,” says Smith. global players that also want a piece of the pie. 16 August 2013 SA Real Estate Investor www.reimag.co.za

CAPITAL PRESERVATION AT ITS CORE Prescient Investment Management is a leading quantitative asset manager, headquartered in Cape Town with additional offces in Dublin, Windhoek, Johannesburg, Pretoria, Durban and Stellenbosch. Prescient also has a representative offce in Shanghai and we were the frst asset manager in Africa to be awarded a QFII (Qualifed Foreign Institutional Investor) licence to invest directly into China. Founded in old stables, Prescient has evolved into a global player. It has been 15 years since we opened our doors for business, offering to the market our unique quantitative approach to asset management. With capital preservation at the core, Prescient’s investment philosophy is simple: PEACE OF MIND. At Prescient Investment Management we aim to give our clients a level of certainty around their investment outcomes, with a commitment to achieve no less than the agreed risk benchmark, and RANGE OF thereafter to look for opportunities to add value over and above this benchmark. We do not merely INVESTMENT diversify risk: risk is measured and managed holistically using proven quantitative techniques. PRODUCTS Our systematic approach to managing risk is scalable and enables us to replicate our investment Unit trUsts process across all markets. When it comes to implementing our process, we adopt a team-based Local Funds approach and consistently work together in a streamlined manner. Each of us understands our Offshore Funds clients’ risk tolerances and this knowledge helps us to meet their expectations of not losing capital. retirement solUtions Living Annuities Prescient aims to deliver only the highest quality of service, and hence we do not outsource our portfolio administration. Retaining our own administration provides us with full control of our Retirement Annuities service delivery and allows us to monitor service quality across all areas of business, thus remaining Preservation Funds fully accountable to our clients. Umbrella Funds Prescient Investment Management has been named Absolute Returns Manager of the Year at Private the 2013 Imbasa Yegolide Awards for Professional Excellence, hosted by the Principal Offcers WealtH manaGement Association (POA) to acknowledge outstanding service delivery and leadership in the industry. Email: Prescient previously won the Overall Investment Manager of the Year Award at the 2011 Imbasa [email protected] Yegolide Awards. The animal sculptures were created by visionary South African artist, Beth Armstrong. Never deviating from formation, geese always stick to their fight path. That way, they manage to migrate successfully year after year. Prescient doesn’t zig or zag either. When it comes to investing, we consistently work together, allowing our clients’ investments to grow successfully. Like geese, we also adhere to a team-based approach, working together to reach new heights in the most effcient streamlined way. www.reimag.co.za Prescient Real Est Investor Ad.indd 1 7/17/13 3:35:17 PM

NEWS ALERTS BY MONIQUE TERRAZAS In Property News This Month The Good The Bad The Ugly SA House Price Growth Ranks The New Expropriation Bill Construction Sector Collusion 3rd Globally According to a recent analysis in Te Economist, The Expropriation Bill of 2013 is better The Competition Commission has fined 15 South Africa now ranks in third place in terms than its 2008 predecessor, in allowing the major construction firms a combined R1.46 of global house price growth, with 11.1% year- courts, rather than the state, to decide the billion for ‘rampant’ collusive tendering in on-year growth over the last 12 months and 18% compensation payable for expropriated projects between 2006 and 2011. In a fast- growth since the fourth quarter of 2007. South property. However, according to Dr Anthea track disclosure process, the Commission had Africa’s year-on-year growth performance is Jeffery, Head of Special Research, South applications for settlement from 21 companies, exceeded only by Hong Kong with 24.5% and African Institute of Race Relations (SAIRR), revealing collusion at meetings to inflate the Brazil with 12.8%. In terms of growth since in practice this improvement is likely to price of tenders and to allocate contracts among the fourth quarter of 2007, South Africa’s be negated by other aspects of the Bill, in themselves, or anticompetitive behaviour performance is on par with that of Canada particular, that it allows hundreds of organs relating to more than 300 projects. The total (18.3%), and is exceeded only by Hong Kong of state to take ownership and possession of value of these projects is an estimated R47 (109.4%); India (88.8%); Singapore (24.8%); property by simply giving notice to the owner, billion, R28 billion related to public sector and China (20.4%). before the state has shown that all relevant contracts and R19 billion related to private constitutional requirements have been met sector projects. Tree frms which did not accept Te analysis reviewed 18 countries of which 12 and before any compensation has been paid. the settlement ofer - Group 5, Construction have experienced growth in prices, including In addition, it fails to recognise that, where ID and Power Construction - will reportedly be Britain, with a 0.9% year-on-year increase and expropriated property includes a person’s prosecuted. the US, where house prices are up by 9.3% year- home, any eviction requires the express on-year. Te six countries that have experienced authority of the courts. Hence, the option of “Collusion represents a negative impact for our negative growth are France, Japan, Ireland, applying to court to decide a diferent measure members in the form of escalated development Italy, the Netherlands and Spain, where prices of compensation is likely to beneft only those costs and reduced yields, with knock-on impacts are down by 7.7% year-on-year. with deep pockets, who, despite the loss of for demand in the economy and the growth of their property to the state, can aford lengthy the property sector,” says Neil Gopal, CEO To judge whether prices are at sustainable litigation with no guarantee of success. As of SAPOA. He adds that SAPOA is unable levels, the analysis also considers the price-to- such, the Bill undermines the right of access to remedy the losses potentially sufered by its rent ratio (analogous to the price-to-earnings to court. members but will continue to lobby regulators ratio used for equities) and the ratio of prices to ensure these practices are eradicated. to disposable income per person (a measure of While government claims that the Expropriation afordability). If these gauges are higher than Bill is needed to speed up land reform and correct Nevertheless, companies involved are bound to face their historical averages, property is overvalued; a great historical injustice, 92% of successful land a litany of civil actions claims. Government intends if they are lower, it is undervalued. In relation claim beneficiaries have opted for cash rather to institute civil claims and Economic Development to rents, South Africa’s residential property is than the return of their land, as they have no Minister Ebrahim Patel stated that government undervalued by 2%, indicating room for further wish to farm. In addition, between 50% and departments that had sufered losses were entitled growth. In relation to incomes, it is overvalued 90% of land reform projects have failed. By its to take this up with companies involved. Durban, by 10%, but this still compares favourably to own admission, government has spent billions in which, like other cities, paid a huge price for its those of Australia (24%), Canada (32%) and taxpayers’ money to take hundreds of farms out of World Cup stadium, has already said it will seek France (34%), all of which are likely to see big production, costing thousands of jobs and billions to recoup what it has lost. Patel said that the claims downward adjustments in the coming year. more in lost revenue. could amount to almost R2 billion. 18 August 2013 SA Real Estate Investor www.reimag.co.za

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LEARN: DONALD TRUMP JNR - Where the world is going and how you can bene t from it Billionaire Real Estate Mogul - Wealth creation strategies from successful people Executive Vice President - Property investment strategies that guarantee success The Trump Organization - The psychology of wealth CLEM SUNTER JOHN CHIN World Renowned Scenario US Millionaire Real Estate Mogul, Strategist and Best Selling Author Property Specialist and Best Selling Author JANNIE MOUTON SISA NGEBULANA Billionaire entrepreneur, Entrepreneur and Billionaire Investor and Author Property Investor Founder and Chairman of PSG Group Chief Executive O cer of Rebosis Property Fund Limited DAVID BECKER NIK KALSI Speaker, Motivator and Professional Trader and Performance Coach Investment Analyst Lewis Pugh’s #1 Coach Founder of The World’s No.1 Gold & Silver Trading & Investment Coaching Company MYSTERY SPEAKERS GORDON MACKAY ? To Be Announced Multi-millionaire Streetwise Investor, Entrepreneur, Author & Motivational Speaker *More speakers to be announced shortly and speakers will vary per venue BOOK NOW FOR TICKETING & GENERAL ENQUIRIES Please contact Juanita Heilbron or Melissa Petersen at Go to www.reimag.co.za 0861 ACT NOW (0861 228 669) Email: [email protected] or [email protected] Diamond Sponsor Hosted by www.reimag.co.za ©

REI Residential LEARN: DONALD TRUMP JNR - Where the world is going and how you can bene t from it Billionaire Real Estate Mogul Building Communities No Profit From Electricity Cost Of Living Dampens - Wealth creation strategies from successful people Executive Vice President Together Allowed Property Market - Property investment strategies that guarantee success The Trump Organization Government will in future involve benefciaries Johannesburg landlords have been warned that According to the latest statistics released by - The psychology of wealth in the planning and building of the communities they are not allowed to proft from electricity BetterBond, the national average home price in which they live, says Deputy Human sales and they are not allowed to pass on City has shown positive growth of 9,3% in the year Settlements Minister Zou Kota-Fredericks. Power’s service charge of R385 to tenants. In a to end-June, compared with just 3,7% in the CLEM SUNTER JOHN CHIN Census 2011 revealed that over 1.2 million landmark ruling, the Gauteng Rental Housing previous 12 months. However, the BetterBond World Renowned Scenario US Millionaire Real Estate Mogul, households were living in informal settlements. Tribunal found that landlords charging tenants statistics also show that the average home price increased by just 1% in the June quarter, This was an increase of almost 20 percent an electricity “service charge” violated the Strategist and Best Selling Author Property Specialist and Best since 1996. Addressing a National Upgrading Gauteng Unfair Practices Regulations and the compared with a 6,6% increase in the first Selling Author Summit in Khayelitsha, the Deputy Minister practice amounts to a proft that they were not quarter of this year. “This clearly illustrates said government would change its approach entitled to make. Te Socio-Economic Rights the dampening efect that high cost-of-living in providing communities with housing. “We Institute of South Africa (Seri) represented 80 increases are having on the real estate market,” JANNIE MOUTON SISA NGEBULANA are now changing our approach to allow for tenants of a block of flats in Hillbrow called says BetterBond chairman Rudi Botha. “In the past three months, the extra funds injected Plettenberg who were being charged R385 more flexibility, more creativity and more Billionaire entrepreneur, Entrepreneur and Billionaire humanity in the way in which we work with each for the electricity service fee. Tis meant into household budgets by January salary Investor and Author Property Investor communities around shelter.” She said this the landlord, Young Min Shan, was raking in a increases and February personal tax cuts meant that government needed to become more proft of R27 000 a month. have been absorbed by sharp increases in the Founder and Chairman of PSG Group Chief Executive O cer of Rebosis Property Fund Limited fexible and creative in its responses to informal cost of transport (especially fuel) and utilities settlement upgrading. (especially electricity). DAVID BECKER NIK KALSI Residential Views Speaker, Motivator and Professional Trader and Performance Coach Investment Analyst Lewis Pugh’s #1 Coach Founder of The World’s No.1 Gold & Silver Trading & Investment Coaching Company MYSTERY SPEAKERS GORDON MACKAY Johann le Roux, Michael Bauer, ? To Be Announced Multi-millionaire Streetwise Adrian Goslett, Executive Director, General Manager, Sean Liebenberg, Michelle Dickens, Executive, MD, CEO, Investor, Entrepreneur, Author & RE/MAX Propell IHFS Excellerate Facilities TPN Management Motivational Speaker “It only takes potential “While being elected “Many people who apply “Over the past decade, “It’s the frst week of buyers a few minutes to a trustee of a sectional for bonds do not know ‘green’ building has a new month. Rent decide whether they like title scheme is often seen the full process involved emerged as a growing is usually due on the *More speakers to be announced shortly and speakers will vary per venue a property or not. As as an onerous and time nor do they have a full trend among a vigorous frst, which can lead with most areas in life, consuming job, those understanding of the interest group to create to tension. We’ve been BOOK NOW FOR TICKETING & GENERAL ENQUIRIES selling a property is all who do take up these banks’ lending criteria high-performance, seeing quite a bit of Please contact Juanita Heilbron or Melissa Petersen at energy-efcient excitement on Twitter, positions should be about making a good and why they are so Go to www.reimag.co.za 0861 ACT NOW (0861 228 669) frst impression.” commended.” stringent.” structures that improve with tenants reporting Email: [email protected] or [email protected] tenant and/or owner- using words that aren’t occupier comfort.” suitable for sensitive Diamond Sponsor Hosted by readers.” © www.reimag.co.za August 2013 SA Real Estate Investor 21

GETTING STARTED BYJOHN ROBERTS To Gate Or Not To Gate... Is community life for you? ated communities have become the There is also the opportunity for sharing the in line with recent changes to the Sectional Title accepted, and often desired, form of costs associated with expensive facilities - tennis Act and local municipalities’ requirements. Ghomeownership in the 21st century with courts, swimming pools, convenience centres buyers increasingly prepared to pay the premiums and stables and equine facilities are ones that The question then is just how much more associated with living behind guarded security or come to mind. These are items many property homeowners are prepared to pay for living in gated access-controlled gates. owners would be unable to afford individually, communities against those opting for freestanding but in pooling resources and opting for communal properties. While not backed by qualified, Consequently, gated residential communities living, can become accessible. independent data, the fgures emerging from estate and garden apartments are the types of agents show a property within a gated community developments most likely to be the new ones Not often considered is that gated communities can command a 10-15% premium on a similar coming to the market. While composite South also aid safety measures for the neighbourhood. freestanding home. African figures are not as easily at hand, US The body corporate can erect speed bumps and statistics show these types of properties have enforce lower-than-typical speeds on the roads as That equates to roughly R50000 on a three- grown from only 2000 in the 1970s to more than bedroom house, yet for a buy-to-let investor, there “Gated communities 50000 by the new millennium. is the possibility of recouping some of that higher capital outlay in higher rentals. On average, rental and garden apartments are That equated to around 6% of that country’s income is around 20% higher in gated communities developments most likely to be the households living behind walls or fences with with the tenants gaining a sense of value for money, about half of them in communities where access security and the assured serenity made possible by was controlled by gates, entry codes, key cards or new ones coming to the market” the relevant rules applying to that community. security guards. measures for residents’ safety, particularly children. However, the elephant in the room (or the gated In essence, gated communities have several They also foster a sense of togetherness - a community) is the perceived security. Reality has common elements. Gates and fences provide the feeling of unity and the unspoken understanding shown security in gated estates is not as efcient perception of security, safety and privacy - and in that neighbours will look out for their peers, as projected or perceived with many of the crimes afuent neighbourhoods, privacy means exclusivity standing aside one another in times of need or committed undertaken by the residents themselves. and thus higher property values. Adding weight to fghting together for common causes. In high-end property developments, the issue of the argument is that a automatic gate system or bored, drug-taking youths has become something private security access boosts the property value Those luxuries come at a price with levies - many have had to tackle while hoping it does not regardless of whether or not it actually impacts on generally covering communal water, rates and rear its head too high as to be noticed. crime in that area. taxes, security, common property maintenance expenses and community employees should that be Essentially, while in most cases it is possible to Facing facts, everyone wants to feel proud of their applicable - working out higher than the individual minimise and control crime in gated communities, environment and including the element of a gated costs associated with a freestanding home. it can never be wholly removed. Developers put community to the home address can ofer prestige into place every conceivable means to limit crime akin to a private club where access privileges are The municipality may also deem the road from external sources, but the inside responsibility required and the real benefts of crime prevention infrastructure within the gated community as becomes that of the owners and the body corporate. are a bonus. private property, meaning the onus for repairing potholes and maintaining the network falls to Tat means there is still place for locking motor To a lesser extent, gated communities may also the residents as a cost above the taxes already vehicles; not leaving valuable items exposed on car ofer buyers the opportunity to purchase a more collected for upkeeping the country’s streets. seats; locking the house doors and installing modern home than those found in established burglar alarm systems and burglar bars. areas, simply because the homes found in those Homeowners in both freestanding properties communities are newer than the freestanding ones and gated communities or flats are billed RESOURCES in the neighbourhood. individually for their rates, lights and water use Just Property Group 22 August 2013 SA Real Estate Investor www.reimag.co.za

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FINANCE BY JASON LEE Simple Steps To: Negative gearing and negative equity he truth about the buy-buy-buy-and- A b e l i e f t h a t c a pit a l never-sell philosophy is that it could appreciation will outweigh Tmake you catastrophically poor before cash flow shortfalls may be well it ever makes you wealthy. founded, as history shows that 5 665 000 property prices always exhibit an upward trend MEDIAN Most property investors start of by investing in over the long term. Te problem is that there is TYPES OF PROPERTIES PURCHASE PRICE a buy-to-let property, such as a fat or a townhouse. a school of piranhas out there that is viciously FOR 2012 Given that interest rates in South Africa are high attacking your cash flow every month and, in comparison to most First-World countries, it as in any other business that has a cash fow growth, but you will only enjoy capital growth 5 is very difcult to fnd deals in which the tenant problem, it usually doesn’t take long before the if you are able to weather the short- to medium- ANALYSIS covers the bond repayments from the start of the piranhas win. term consequences of property ownership. REPORTS investment. Tis is particularly true if the investor Unfortunately, this is where many property 9,4 gears the property highly through a 90 to 100 per Besides cash fow issues, there are a myriad of investors get it horribly wrong. cent bank loan. other problems that can present themselves in the property ownership business. True disaster However, gearing can be your best friend and Tis means that the investor is in a negative cash strikes when they all hit you at the same time. help you on the road to unprecedented wealth if flow position, which becomes even more dire These problems can range from non-paying you are able to manage it properly. I would like to MILLION once rates and or levies and maintenance costs are or absconding tenants to interest rate rises, reiterate that I would not be in a position today to deducted from the monthly income. Te investor to property owners losing their jobs or their write books on property investing if it were not PROPERTIES LISTED may be short on the deal by one to two thousand business getting into financial difficulty. for the banks and the money they lend investors rands per month. Ten he or she decides to buy Suddenly the shortfalls become unmanageable for buying property. I have been at the coalface of investment property number two. Once again, and unsustainable. If hard times strike in doing property deals in the best and the worst of the rent is usually not sufcient to cover the bond the middle of a depressed property market, markets. I have tasted the joys of positive gearing repayments and property expenses, so that the investors who bought properties based on a and the absolute despair of negative gearing,. investor fnds himself one or two thousand rand negative gearing approach have a massive new short on the second property, too. Te investor problem to contend with – something called 5 may repeat this a third time, and then a fourth negative equity. time, and so on. Te net efect of this investment SEARCHES AVAILABLE approach is that the investor may be able to brag Simply put, negative equity occurs when the about owning fve or ten properties, but in reality value of a property that is used to secure a loan 336 734 he or she is living mere seconds away from disaster in the form of a bond over the property is less MEDIAN on a day-to-day basis, because he or she is asset than the outstanding balance on the bond. Once NUMBER OF rich, but cash fow poor. this situation arises, the bank owns you, because TRANSFERS FOR 2012 they can prevent you through an interdict from This investment approach is what is known selling the property for an amount that is less as the negative gearing approach to property than what they are owed. Tey can also foreclose investing. Negative gearing is the term used on the property, recover what they can on public The Smart Way to Search to described deals in which your income does auction, and hold you liable for the shortfall on Property Intellect provides an accurate, reliable and Property Intellect’s searches are smarter with not cover your bond repayments each month. this property, although you no longer own it or constantly updated data research tool that results in increased functionality and richer data, along with Investors who follow this approach do so because receive income from it. This excerpt has been taken from every business decision being successful. uncapped reporting. tel: 0861 53 53 53 they believe that the eventual capital appreciation Jason Lee’s new novel, Ten Simple www.propertyintellect.co.za of the property will far outweigh the cash-fow This is the ugly face of negative gearing, Steps To Property Wealth. Property Intellect is one of the key products that But don’t take our word for it, give it a try. assist clients in making business decisions, designed to We know* you’ll love it. shortfalls and constraints in the interim. Tey which has crippled thousands of property Powered by increase the effectiveness of property reporting and also argue that tax write-offs mean that the investors when times get tough. So, holding RESOURCES evaluations with leading data processing techniques. government is assisting them in the ownership on to property for the medium to long term is a 10 Simple Steps To Property Wealth of the property. sound strategy if you are looking for solid capital Zebra Press 24 August 2013 SA Real Estate Investor www.reimag.co.za

5 665 000 TYPES MEDIAN OF PROPERTIES PURCHASE PRICE FOR 2012 5 ANALYSIS REPORTS 9,4 MILLION PROPERTIES LISTED 5 SEARCHES AVAILABLE 336 734 MEDIAN NUMBER OF TRANSFERS FOR 2012 The Smart Way to Search Property Intellect provides an accurate, reliable and Property Intellect’s searches are smarter with constantly updated data research tool that results in increased functionality and richer data, along with every business decision being successful. uncapped reporting. tel: 0861 53 53 53 www.propertyintellect.co.za Property Intellect is one of the key products that But don’t take our word for it, give it a try. assist clients in making business decisions, designed to We know* you’ll love it. increase the effectiveness of property reporting and Powered by evaluations with leading data processing techniques. www.reimag.co.za

FINANCE BY KOOS DU TOIT Your Success Starts with the right fnance any investors, realising the power of gearing (borrowing money to invest Min an asset) and the spectacular returns that it delivers, step into a common, but entirely avoidable, pitfall: failing to fnd the right finance. This includes the failure to get a mortgage bond approved and thus abandoning their investment plans, or accepting any fnance ofered, even when this finance comes with a high interest rate and unsuitable terms and conditions. investors calculate their cash fow projections on a 12% interest rate (the long term average) financial institution after being declined by What is the right fnance? before buying a property. Tis allows them to applicants’ own banks. While gearing is a powerful force in creating build a buffer against interest hikes without wealth, the right gearing or, in the case of impacting their cash fow and jeopardising the This means that investors should not simply property investment, the right mortgage long-term success of their property portfolios. abandon their property investment plans if finance, is absolutely crucial to property their own banks or another institution declines Getting the right fnance investment success, because the fnance terms their application for fnance. Te banks are still have a signifcant impact on both the investor’s As a result of the global credit crisis and the lending, but investors must ensure that their cash fow and the return on investment. implementation of the National Credit Act, it applications comply with the banks’ stringent is not as easy to obtain mortgage fnance as it criteria in terms of afordability and acceptable So what is the right fnance? Preferably, it is a was some years ago. But it certainly does not security, that their cash fow can indeed support 100% bond at the prime interest rate or lower, mean that it is impossible. Unfortunately, many the repayment of the loan and that the value of ofered with suitable terms and conditions. investors simply give up when their application the property – as the security for the loan – will for 100% mortgage finance is rejected by a cover the outstanding loan should the investor Te prime interest rate currently stands at a bank and, subsequently, discard their property default or sell. 30-year low of 8.5%. At such a low, an ofer of investment plans. Or, perhaps even worse, The shortcut prime + 2% may not sound too bad, but when they accept finance at high interest rates or interest rates increase – as they inevitably do – unsuitable terms and conditions. In doing so, investors will fnd the services of a this interest rate may well leave an investor with professional bond originator that specialises Reality check bond repayments that are simply unafordable. in buy-to-let property, such as P3 Bonds, Te latest statistics show that the monthly home indispensible. Such a bond originator will And interest rates, like all economic variables, loan approval rate now stands at around 70% assist an investor to obtain the right finance, rise and fall in relatively predictable cycles. of applications, although only around 35% of by approaching multiple lenders with a viable While the time period it takes to complete a applications for 100% home loans are being proposition that is thoroughly and accurately cycle and the extent of the interest rate hikes granted by the banks. Tis is because the banks’ motivated, neatly and correctly presented, and and cuts may vary from one cycle to the next, deposit requirements remain steep at an average respects the banks’ diferent lending criteria, and depending on a host of economic variables, of around 17% of purchase price. will also assist investors to scrutinise and compare long-term data clearly shows how the cycles diferent ofers, to negotiate where necessary and inevitably turn over time. In fact, the average However, there is some good news. Statistics to ensure that only ofers that contribute to their fuctuation during normal interest rate cycles is also reveal that almost 30% of home loan property investment success – at the right interest 600 basis points. applications declined by one bank are approved rate and terms and conditions - are accepted. by another. Over the last year, there has also Build in a bufer been an increase of around 25% in the number RESOURCES Whatever the current interest rate, smart of applications being approved by another P3 Investment Group 26 August 2013 SA Real Estate Investor www.reimag.co.za

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SMART MOVES BY KOOS DU TOIT Buy-To-Let Is it risky business? any so-called “investment experts” But, again, this risk can be managed very Tese risks can be managed by: – and even those who dispense efciently by: • taking out the insurance to cover damages M“investment advice” around the fire • doing thorough research before investing in caused by tenants; – simply dismiss buy-to-let property investment an area to ensure a strong and ongoing • budgeting for and implementing regular as being “too risky”. Of course, all investments demand for rentals for the type of property; and ongoing maintenance; entail risk – there is no such thing as a risk-free • factoring in a vacancy rate of 5% into their • budgeting for unexpected repairs and investment. cash fow calculations, even if the vacancy maintenance. rate for the area is lower; Poor buying decisions However, it is a myth that buy-to-let property • reducing rentals on a short lease basis when is a high risk investment. Tis is because, unlike market conditions demand it. A buy-to-let property investor can also make many other investments, buy-to-let property poor judgement calls. However, this risk can be Interest rate hikes investment allows investors to manage – if not managed very efectively by: eliminate – all the major risks involved. Many investors who quite easily obtained 118% • using a proven system, backed up by solid bonds at the height of the property boom, training and easy-to-use software, such as Managing tenant risk which coincided with low interest rates, faced the P3 Investment System, to ensure you Bad tenants are undoubtedly perceived as the severe cash fow strain when the interest rates buy the right property in the right area, single biggest perceived risk when it comes to buy- increased rapidly and dramatically. with solid rental demand and good to-let property investment. prospects for capital growth, at the right In the current low interest rate environment, price and with the right fnance; and But this risk can be managed efficiently this is again a major risk but, nevertheless, it is a • ensuring every buy-to-let investment with just a few simple and affordable risk risk that can be managed efciently by: decision is thoroughly considered according management techniques, such as: • building in an interest rate “bufer” by to current variables and future performance, • doing thorough background checks and calculating your cash fow projections including cash fow projections and obtaining referrals from previous landlords; on the long-term average interest rate provision for vacancies, maintenance and • signing a water tight lease and collecting a before buying a property to ensure you other contingencies. deposit to cover potential damages; can absorb future interest rate hikes • collecting a separate deposit for utilities or without impacting your cash fow; Buy-to-let property investment, like any installing pre-paid electricity and water • fxing your own interest rate by paying a other investment, entails risk. However, meters; few hundred Rands extra a month into the what sets buy-to-let property apart from • doing proper inspections with the tenant bond, instead of paying a higher repayment other investment options is the ability to before, during and after occupation; for a fxed interest rate through the bank manage – if not eliminate - the risks involved • taking out rental insurance to cover late or - the extra payments will reduce the through tried-and-tested risk management non-payment of rentals or evictions; or interest payable, and will build up a reserve strategies that are simple and cost-efective • appointing a reputable and professional of funds that can be used to cover the to implement. As a result, the myth that rental and property management company increased bond repayments when interest buy-to-let property investment is a high to take care of all the above. rates do rise. risk investment is a complete fallacy. In fact, buy-to-let property investment is a Vacancies Maintenance virtually risk-free investment if prudent risk Perhaps less terrifying than a bad tenant, but still a Routine maintenance and particularly management is applied. scary prospect for an investor, are vacancies, which unexpected repairs, as well as damages caused will require the investor to subsidise all the costs by tenants, can place an investor’s cash flow RESOURCES related to the property from his or her own pocket. under severe strain. P3 Investment Group 28 August 2013 SA Real Estate Investor www.reimag.co.za

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IMPROVING BY ANGELIQUE REDMOND Get Curb Appeal And your house will shine QUICK TIPS oes your home have a positive, striking of colour, with paint or by installing a custom character, with charm that adds wooden door. Clean of any dirty spots around 1 Dvalue to your neighbourhood, or it the door handle or knob and use metal polish on Kill mold and mildew on the house, the neighbourhood eyesore? Your home is a the door fxtures. Your entry should also refect sidewalks, roof, or driveway. refection of you and one of the most important the home’s interior, so choose a doormat that Stow away unnecessary garden aspects of your home is the outside appearance, refects your personal style. 2 implements and tools. efectively what people see when they walk past 3 or frst arrive at your house. House numbers, the entry door lockset, a Clean windows and gutters. wall-mounted mailbox, and an overhead light 4 Pressure wash dirty siding and When it comes to curb appeal, keep it simple. fxture are all elements that can add style and It might sound like something small and quite interest to your home’s exterior. Tese elements dingy decks. basic but this one rule will prevent your home should work in harmony; so if they are broken 5 Edge sidewalks and remove from being the neighbourhood eyesore. When or dirty and outdated, think of following vegetation growing between you start of think of classic but simple ways to the same style or theme for these elements, concrete or bricks. ensure your home looks elegant and attractive. depending of course on the architectural style Your garden is key to this, grass should be kept of your home. Is your house a traditional or 6 Mow the lawn. Get rid of weeds. neat and tidy, and trees should be trimmed and modern house? The worst thing you can do 7 Rake and dispose of leaves. if you are going to have fowerbeds, they must a traditional house is to try and incorporate 8 be kept neat and tidy. Hedges can be a great contemporary elements, which clash with the Trim tree limbs that are near or addition to any walls or fences you have but if aesthetical style of your home. Another thing touching the home’s roof. they are not kept trimmed and tidy, your house you can do to the front door or any windows in has lost its frst battle. Another thing which can the front of the house is add mouldings to it, Complement the architecture add appeal to your garden is by adding artwork, white mouldings on red brick really make the An appropriate paint colour palette will things like bird feeders, bird baths or fountains, front door and windows pop. complement the architecture of your house. small ponds and stone pathways, can make an There is nothing worse than a house painted average garden look extraordinary. If your home has an older gutter system, odds in garish colours, which stands out but for all are it’s also sufering from peeling paint, rust the wrong reasons. Two or three paint palettes Once you have your garden looking smart its spots, or other problems that can convey a sense in appropriate colours will provide variety and time to think about the outside of your home. of neglect. Replace old systems with newer, enhance the curb appeal of your home. Colour What’s the frst thing you notice about a house, snap-ft vinyl gutter systems that go together can be a means of creating an interesting façade, the front door? Te front door says a lot about with few tools and require no painting. Copper just make sure you use good quality paint, as you, it is the focal point of your home. Make systems, while pricier, convey an unmistakable paint which chips of or fades will detract from a statement by giving your front door a blast look of quality. the appearance of your home. 30 August 2013 SA Real Estate Investor www.reimag.co.za

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MANAGING BY IVAN ZARTZ Settling Disputes In Sectional Title What do the rules say? n the event of a dispute between the “If such a dispute or complaint arises, the developer when submitting an application for registered owner of a unit and the body aggrieved party shall notify the other afected the opening of a sectional title register, to the Icorporate, are the parties compelled to go to party or parties in writing, and copies of such extent prescribed by regulation, and which arbitration or must the dispute be adjudicated notifcation shall be served on the trustees and rules may be substituted, added to, amended by a Court? In essence, if an owner challenges the managing agents, if any, and should the or repealed from time to time by unanimous certain charges on his account and the body dispute or complaint not be resolved within 14 resolution of the body corporate as prescribed corporate disagrees with the basis of the days of such notice, either parties may demand by regulation;...” owner’s argument, must the dispute be referred that the dispute or complaint be referred to to arbitration or must the trustees of the body arbitration: Provided that, if an owner declares In Balmoral Heights No 39 Bk v The corporate issue summons? a dispute with the body corporate, it shall be Trustees for the Time Being of the Baumoral sufcient notice if notifcation is served on the Heights Body Corporate CPD (A698/2001) The legislative framework relating to the trustees and managing agents, if any, and such [2002] ZAWCHC 54 (4 October 2002), the management and control of sectional title owners will not be required to serve notice on court expressed the opinion that ‘arbitration schemes provides that a scheme shall be each of the other owners.” is compulsory in all matters where a dispute controlled and managed by means of rules Section 35 (1) of the Sectional Titles Act 95 exists, unless the relief claimed is not comprising, inter alia, management rules of 1986 (the Act) provides that a scheme shall competent through arbitration’. prescribed by regulation. Rule 71 of the be controlled and managed by means of rules prescribed management rules provides as as from the date of establishment of the body In the case of Body Corporate of Greenacres follows: corporate, subject to the provisions of the Act. v Greenacres Unit 17 CC and Another 2008 Section 35 (2) reads as follows: (3) SA 167 (SCA): the Supreme Court of “Any dispute between the body corporate the rules shall provide for the control, Appeal held that in order for the rule (rule 71) and an owner or between owners arising out management, administration, use and to operate, there must be a dispute. Te court of or in connection with or related to the Act, enjoyment of the sections and the common held further that in the absence of a dispute these rules or the conduct rules, save where an property, and shall comprise- – for example, where an owner ignores a interdict or any form of urgent or other relief demand for payment of levies or simply refuses may be required or obtained from a Court a) Management rules, prescribed by without reason, to pay them, there can be no having jurisdiction, shall be determined in regulation, which rules may be substituted, arbitration, as there is nothing for an arbitrator terms of these rules.” added to, amended or repealed by the to determine. 32 August 2013 SA Real Estate Investor www.reimag.co.za

RESIDENTIAL The question whether arbitration is and payable’ to the body corporate. Te body referred to above, which, in the owner’s view, compulsory under management rule 71 was left corporate also sought orders for payment of compelled the resolution of the body corporate’s open in Greenacres. Te issue in that case was interest on the amount claimed at a rate of two claim to be determined by arbitration. whether a dispute as to the liability of an owner percent (2%) calculated from 1 August 2006 to pay levies is excluded from the operation of and for costs of suit on the scale as between Te court resolved that only if the disputing the rule. Tis court held that it is not excluded attorney and client. parties consented to arbitration at the time and that it is arbitrable. of the dispute, could a dispute be referred to In the case of Body Corporate Pinewood Te owner admitted in his defence that he was arbitration and in addition, that the provisions Park v Dellis 2013 (1) SA 296, the respondent obliged to pay levies ‘imposed in accordance of the Act and the regulations did not prescribe was the registered owner of Sectional Title with the Act, as read with the rules governing an arbitration procedure for inclusion in the Unit 7 (the property) in the Sectional Title the Scheme’, but denied he was obliged to rules; and the management rules were not Development Scheme known as Pinewood Park pay the amount claimed. He pleaded further an Act of Parliament that could exclude the No 202 (the scheme). Te property was situated that any entitlement to claim the levies that operation of the Arbitration Act. in Pinetown, KwaZulu-Natal. As owner of had arisen more than three years prior to the the property the respondent was obliged, in institution of this action had prescribed and It is not the object of this article to comment terms of s 44(1) (b) of the Act, to pay levies in that the body corporate had from time to time on the merits of the parties consenting to respect of the property to the applicant, the appropriated payments received from him Arbitration in disputed matters or taking body corporate, which managed the scheme. towards debits which were unauthorised and the disputes to court. It is sufce to state that For convenience I shall refer to the applicant as to which the body corporate was not entitled. it is the writer’s view, that given the time ‘the body corporate’ and to the respondent as He was entitled to be credited on his account it takes to obtain a trial date today and the ‘the owner’. with the payments, which were previously fact that there are arbitrators who specialise appropriated towards unauthorised debits. in Sectional Title disputes, it is generally On 2 November 2006 the body corporate far better to refer the disputes (particularly issued summons against the owner for At the pre-trial hearing, the owner’s legal complicated disputes) to arbitration. payment of arrear levies in the sum of representative contended that the jurisdiction RESOURCES R123 101.00, which the owner had allegedly of the High court to determine the claim was failed to pay ‘despite same being due, owing ousted by the judgment in the Greenacres case, Ivan Zartz Attorneys www.reimag.co.za

STRATEGIES BY RUI MARTO OUTSTANDING MUNICIPAL s On A Property ost purchasers of immovable property would be forgiven Mfor accepting that once they are in Are you liable? possession of a rates clearance certifcate, they are guaranteed that there are no further municipal debts outstanding over the property, once they take transfer of same. Nedbank. In this matter, when a request There have been increased incidences of was made for a clearance certifcate, same municipalities writing back or charging included historical debt. Te attempts by historical debt not covered by the rates the conveyancers to convince the officials at clearance certificate to new owners, either and other municipal taxes, the municipality to exclude the historical debt after they take transfer, alternatively at a levies and duties during the were unsuccessful, causing Mathabathe and time when they seek to re-sell the property. two years preceding the date of application for the Nedbank to launch an application ordering Municipalities are also charging owners for certifcate have been fully paid”. the municipality to provide a Section 118(1) historical debt beyond the two year period In the circumstances, Section 118(1) specifcally clearance certifcate limiting the amounts due covered in a S118 clearance certifcate. What is includes a time limit of amounts incurred during over the property to two years preceding that of the legal position of an owner or the purchaser two years preceding the date of the application for the application. in this instance? the certifcate. After the applicants succeeded in the initial Conveyancing process - clearance Historical debt application to court, the municipality took the certifcate Municipalities are, at times, not only charging matter on appeal. As part of the conveyancing process, a for amounts incurred within this two year conveyancer is required to obtain a clearance period but include indebtedness for the period In the Judgment, the Court examined the efect certifcate contemplated by Section 118(1) of preceding those two years. For purposes of this of Section 118(1) and Section 118(3). S118 (3) the Local Government: Municipal Systems article, I am going to refer to this older debt as states that: Act 32 of 2000 (“the Act”), in respect of the “historical debt”. In practise, municipalities are property. The certificate confirms that all either charging for historical debt included in “S118 (3): An amount due for municipal amounts due in terms of Section 118(1) in the amount claimed for clearance certifcates service fees, surcharges on fees, property rates respect of the property have been paid in full. in terms of Section 118(1), alternatively, they and other municipal taxes, levies and duties are issuing clearance certificates for a two is a charge against the property in connection Section 118(1) of the Act states:- year period and once transfer goes through with which the amount is owing and enjoys “Section 118(1): A registrar of deeds or other are debiting the historical debt to the new preference over any mortgage bond registered registration ofcer of immovable property may purchaser. We are currently attending to a against the property.” not register the transfer of property except on matter where in fact the historical debt has production to that registration officer of a only been raised for the very frst time when the The Court concluded that the effect of the prescribed certifcate - purchaser has re-sold the property, four years two provisions is diferent. Section 118 assists (a) issued by the municipality in which that after initially taking transfer. municipalities in the collection of monies property is situated; and payable to them in respect of property rates Case law and taxes. Firstly, they are given security for (b) which certifies that all amounts due in Te Supreme Court of Appeal recently delivered repayment of the debt in that it is a charge connection with that property for municipal judgment in the matter of City of Tshwane against the property concerned (Section 118(3)) service fees, surcharges on fees, property rates Metropolitan Municipality v Mathabathe & and secondly, they are given the capacity to block 34 August 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

RESIDENTIAL transfer of ownership of property until debts have ultimately does a clearance certificate guarantee? can a municipality hold the new owner responsible been paid (Section 118(1)). Te two sub-sections Who remains liable for historical debt? Who can the for a historical debt incurred by previous owner? thus provide the municipality with two diferent municipality hold liable for the historical debt? Te remedies. Section 118(1) is an embargo provision question of the validity of the clearance certifcate The debate arises as a result of the fact that whilst Section 118(3) is a security provision. has signifcant consequences and has created great Section 118 states that the debt attaches to the concern amongst conveyancers. property and not to the owner or to the creator What is especially important in relation to of the debt. Unfortunately, the Mathabathe Who is liable for historical debt? our query, is that whilst there is a time limit judgment has created much confusion in specifed under Section 118(1), Section 118(3) is As stated in the aforesaid judgment, a municipality answering this question. If one were to solely an “independent, self-contained provision”. Te has two separate remedies. Should a municipality examine the judgment together with the security provided by sub-section (3) amounts seek to enforce its rights and sue an owner for arrears, provisions of Section 118 it would appear that a to lien having the effect of a tacit statutory in terms of Section 118(3), a municipality is entitled municipality could proceed against a new owner hypothec and no limit is placed on its duration. to claim for full arrears, including historical debt. In in these circumstances. As stated by the court, “Its efect is to create in terms of other Court decisions read together with favour of a municipality a security for payment by-laws (which may difer per area) owners are jointly However, in my opinion, unless fraud was of the prescribed municipal debts so that a and severally liable for the consumption charges committed by the parties to the sale, this cannot municipality enjoys preference over a registered of occupiers of property, should same not be the be the case. Te Constitutional Court decision mortgage bond on the proceeds of the property”. owners. It is important to note that a municipality in the matter of Mkontwana vs Nelson Mandela In the circumstances, it does not matter when the enjoys preference over any mortgage bond registered Metropolitan Municipality and Others, the component parts of the secured debt became due. against the property. In the circumstances, if a Court had to determine the constitutional property was sold in execution by a bank, the validity of various provisions, including Section Whilst the municipality lost the appeal municipality would be paid frst. 118. The Court focused on the link between for technical reasons, the wording of the the debt, the owner and the property. The judgment has lead to some confusion and much In circumstances where an owner seeks to sell a Court ultimately ruled that Section 118 was debate. Unfortunately, the judgment stops property and requests a clearance certifcate, then constitutionally valid. However, in its fndings, it short of providing a fuller explanation of the Section 118(1) applies. Te court confrms and the required sufcient proximity between the three. practical implications of its determination and municipality concedes that an owner is entitled to a clarifying what debt municipalities can charge Section 118(1) clearance certifcate on compliance of In my opinion, a transfer to a new party and to whom within the framework of the the requirements. breaks that nexus. There is also neither a conveyancing process. contractual nexus nor enrichment on the part Can a municipality hold a purchaser liable of a purchaser. Confusion for historical debt of a previous owner? Tis judgment has raised many questions regarding If a Section 118(1) clearance certifcate only covers RESOURCES the validity of a clearance certificate. What debt incurred two years preceding the application, Marto & Laftte Martin Goodman, CEO, Rentshield because if the estate agent’s do not do their job systems in place, he will be exposed dramatically. The properly, they are exposing the landlord to rules of landlord has to ensure that he has practical systems Consumer Protection Act (CPA), which can result in in place that govern his relationship with the tenant, big fnes for the landlord. especially if he does not go through an estate agent. If landlords do not go through an estate agent, I would advise them to make sure they do their 3) What do you think the secret to a good tenant/ homework thoroughly in terms of who they let landlord relationship is? through their door as a tenant. Don’t just do credit The secret to a good tenant/landlord relationship is, checks– do reference checks, make sure the potential without question, communication. The landlord is tenant is stable at work and that their previous sometimes viewed as the enemy, but if he embraces landlord was happy with their payment history. The the tenant, and vice versa, through communication, challenge is that, once you let a tenant through the their relationship is likely to be a positive one. door, they have rights which sometimes exceed those of the landlord. It is for this reason that the 4) What is the one thing the tenant market needs vetting process is critical. the most? Zero deposit. A hefty deposit can often act as a 1) What is the most essential piece of advice you 2) What is the biggest problem facing landlords deterrent to a potential tenant and can sometimes can give to a landlord? right now? take a property that the tenant could have aforded I would advise landlords that, if they working through If the relationship with a tenant turns sour, if the entirely out of their price range. an estate agent, to select that agent very carefully, landlord is not protected/does not have the right www.reimag.co.za www.reimag.co.za August 2013 SA Real Estate Investor 35

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REI Commercial New Method For Measuring Private And Public Sector Green Is In Floor Areas Meet SAPOA’s new method for measuring floor Tulas Nxesi, Minister of Public Works, recently It’s inevitable that South African property areas is a far more accurate means of measuring held an open meeting with the South African developers and businesses are embracing floor areas for office, retail and industrial private sector property owners to iron out sustainability development as the number of space is recommended for both existing and challenges and discuss issues of mutual interest. buildings achieving Green Star SA ratings has new buildings in order to achieve national Te meeting comes in the light of his keenness increased. June proved a bumper month for uniformity in regard to the measurement of to boost transparency in government property green building certifcations with a total of six rentable area. “In general, landlords benefit leasing activity with all property stakeholders. new buildings receiving a Green Star SA rating from the fact that the remote common areas In the frst meeting of its kind since the dawn from the Green Building Council South Africa. are now allocated on a proportionate basis to of democracy, the Department of Public Works Tis upsurge further substantiates that the green tenants. On the other hand, total rentable areas and property owners gathered at the Park Hyatt building movement is rapidly gaining ground decrease because supplementary common areas in Johannesburg. in South Africa as developers and progressive now come out of the total rentable area of a businesses increasingly embrace sustainable building and are listed separately and charged Te department, which is a custodian of state building practices. Tese new ratings take the at a rate or cost at the landlord’s discretion,” assets and signs leases on behalf of government total number of Green Star rated buildings in explains Sean Liebenberg of Excellerate departments, has never held a meeting with South Africa to 36, and include some impressive Facilities Management. private property owners, even though its and signifcant developments. protracted challenges are well documented. Commercial Views Stefano Contardo, Oscar Siziba, Marc Edwards, Keillen Ndlovu, Amanda Stops, Executive, Head of Enterprise CEO, Head of Listed CEO, Improvon Business, Tower Property Fund Property Funds, South African Absa Stanlib Shopping Council “If we cannot eliminate “As a bank we have a “Tightly managed and “It’s important to note “Shopping is evolving our environmental huge interest in the controlled operational that in the medium to rapidly. What shoppers impact entirely, we must survival of a small costs mitigate pressure long term listed property want is for their actual at least try to mitigate it. business across the on headline rentals is a better bet compared shopping experience For some tenants, this country; they are a key allowing for predictable, to bonds, because it – browsing, selecting, means a whole brace driver of so many things, sustainable, growth into ofers growing income trying, buying – to of technologies and we pretty much look for the future.” whereas bonds do not.” be entertaining. To practices, for others it a business that is well meet consumer needs, translates into the bare supported fnancially.” retailers must focus on minimum.” customer experiences.” www.reimag.co.za August 2013 SA Real Estate Investor 37

STRATEGIES BY MARK BRADFORD What’s The Secret To commercial investment success? n the face of it, commercial property is an easy and attractive asset class, Oguaranteeing returns for the duration of the tenant’s lease. Unlike equities, property is a tangible asset against which fnance can be raised and which should yield capital growth in addition to rental yield. Te world’s population continues to urbanise and consequently, cities to grow. People need spaces from which to work, places in which to shop, and clearly occupier demand for commercial property will predictably increase. And with increased demand, property values can only rise, so how can any prudent investor forgo an opportunity to acquire commercial property? Whilst buildings can be refurbished yield and capital growth in equal measure, with varying degrees of success, shifting particularly within a short - to medium - term Biomimicry is one of this centuries most demographic changes are brought about by time frame, grade opportunities in line with innovative and relevant engineering disciplines, factors beyond the scope and control of the anticipated expectations. Secondary property utilising natural strategies to evolve sustainable property owner. Tenants remain relatively may well return higher initial yields and prime solutions to complex problems. The most flexible in their ability to move from one property stronger capital growth. attractive of natural creatures are inevitably the location to another, conversely the property most dangerous, particularly in the hands of owner’s only prudent response to declining Active Management - Investment in the novices. Property investment the world over has demand for location is to disinvest. property sector, whether direct property evolved in its complexity, and as a result, despite ownership or via the listed sector requires active its obvious visual attraction, can have disastrous With limited supply of prime investment management. Knowledge of local conditions, consequences for the undercapitalised and opportunity and intense rivalry between cash market trends, competitive offerings, tenant inexperienced. rich investors for these relatively expensive requirements and operating expenditure trends assets, it is natural to turn to new or secondary are imperative to proactive risk management. In The gap between prime and secondary markets for opportunity. There are indeed the South African context, increasing municipal property markets is widening. Broadly rich pickings to be had in these markets and utility charges are combining to form a speaking, the requirements for property to though the unreported stories of sometimes cocktail of above-inflation costs which are be regarded as prime are focused around dramatic failure are equally prevalent. Success having a toxic impact on achievable net rentals, locational superiority, design efficiency and in these more liquid and afordable markets is particularly in non-prime assets. Increasing costs technological relevance. Tenants are targeting only possible with a clear understanding and above thresholds afordable to tenants, will result reduced occupation costs and increased facility mitigation of risk. Entry into secondary markets in downward pressure on rentals; lower rentals efficiencies. Premium rentals will continue is arguably cheaper and consequently tends translate directly into lower yields and adversely to be paid for modern buildings where high to attract a broader class of investor including afect the income valuation of property assets. staf occupancy ratios can be accommodated, private individuals. It is also a market where Prudent and informed investors may under these where consumer traffic is high or the latest investors irrationally look to “self-perform”, circumstances wish to divest of their directly held distribution technologies employed. Owners without clear strategy or local knowledge, to property or of their investment in listed entities of older buildings where current occupier save costs by not employing advisors, and in so with substantial exposure to secondary markets. demands cannot be accommodated without doing to add to an already loaded balance of risk compromise are increasingly being faced with a weighing against their success. Tenancy - All too often, the importance of choice of either having to reduce rentals or face the tenant’s contribution to the success of any Against this background, what advice vacancy. As tenant requirements are unlikely to property investment is overlooked. With the for property investors? ever revert to past inefciencies, owners of older absence of rental income, property is in most buildings can reliably predict an ever widening Strategy - The development of a clear cases not an asset but a liability as operational gap between prime rentals and those which investment strategy is imperative. Given costs continue to be incurred without the they are capable of achieving. that investment in property seldom produces benefit of revenue. Tenancy is a critical cog 38 August 2013 SA Real Estate Investor www.reimag.co.za

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STRATEGIES in the workings of the commercial property not least of which is an ability to raise capital and The prime office markets in all major cities market and investors should dedicate sufcient gear the investment via mortgage bond fnance. continue to be a desirable investment. Existing priority and resources to maintaining good Given access to capital, a solid investment buildings in good locations do however communication with tenants. Knowledge of strategy, the right property, solid market trade at well below replacement value and tenant positions and operational requirements knowledge and time to actively manage the asset, there is significant upside to be had upon is paramount to any successful property fxed property acquisition is a recommendable refurbishment, providing the resulting product investment strategy. course of action and investment security. The meets with modern tenant requirements. success of direct investment in commercial Listed Sector – In most major markets across property is evidenced by the fact that despite Industrial and logistical warehousing is the globe, prime property is generally held the economic climate of the past few years, there perhaps the only sector, which until now by the listed sector and South Africa is no have been few “fre sales”. Commercial property has been somewhat overlooked by the listed exception. Private investors looking to enter the in South Africa has continued to perform well sector. By implication, this represents the most market or expand upon their holdings are best and values have generally held. Contrary to interesting opportunity for private investors advised to consider the listed sector as a viable speculation there are few bargains to be had although it is not anticipated that this window alternative to buying direct property. Buying and property has since 2008 continued to trade will remain open for long. Te proposed deep into a listed vehicle, affords even the most at fair value. If there is to be an alert sounded water port terminal in Durban combined modest of investors an opportunity to partake in the direct property ownership space, it is that with the inevitable tolling of Gauteng’s major in this exciting asset class. Funds are generally the sale of property takes time, particularly with freeways will result in some demographic shifts well managed and the scale of portfolios currently protracted transfer procedures. Direct as distributors look to reposition their facilities allow the efects of a single underperforming property is relatively illiquid. accordingly. Well-informed investment property to be smoothed over. Again, investors decisions should provide both yield and capital should conduct due diligence on their selected Sectoral Opportunity – Commercial property appreciation in the medium term. Investors fund, with particular attention paid to the is broadly divided into Retail, Office and would be well advised to look to midi to maxi management team, its strategy and underlying Industrial sectors. sized facilities rather than mini-units which are property assets. Many funds have both local the most susceptible to economic volatilities. and offshore investments in their portfolios Retail rentals have witnessed continued providing the added security of a Rand hedge. increases in regional and super regional centres. International Investment – Investment in Perhaps the greatest advantage of investing in a It could be argued that the super regional direct property beyond our borders should listed fund, is the fexibility to disinvest at short market is saturated given the current economic remain the preserve of the larger investor notice should the need arise. climate. Tere is however signifcant scope to and listed sector for the foreseeable future. further develop and invest in decentralised Any apparent bargains should be thoroughly Fixed Property – There is an understandable local convenience centres , particularly in rural interrogated as it is unlikely that local capital attraction to investing in directly held property, areas of the country. would have overlooked opportunity without good cause. Again, the listed sector and private equity funds would be the most recommendable route to entry into global markets. Investors are strongly advised to retain appropriate advisors prior to sinking hard earned Rands into the vast and ofter complex foreign markets, even if this investment is via REITs. Tere is every reason for commercial property investment to retain its reputation as a highly desirable and rewarding asset class. At the start of my career in the world of commercial property, a mentor advised “never to get emotionally attached to property”. Don’t let ego or personal bias cloud any property investment decisions. Property is after all just a commodity, there is a right time to buy and most defnitely a time to sell. What distinguishes success from failure, is timing, patience and most importantly, knowledge. RESOURCES Jones Lang LaSalle 40 August 2013 SA Real Estate Investor www.reimag.co.za

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FINANCE BY JONATHAN SMITH Riding Out The Risks Of investment in a volatile economy There are several risks which we face in this our continued growth: these include Eskom’s regard but I would like to explore what I continued roll out of additional power stations, believe to be the most pertinent to our current the new port networks to be constructed along circumstances, as follows: our coasts and the new rail networks under • Political risk plan by Transnet; • General economic risk 3. Te national government’s improvement • Trading risk of services through education and training of • Consumption risk its personnel: readers of this magazine would • Property sector risk have noticed the exemplary service which we obtain from the Department of Home Afairs Political risk of late – a marked diference from a few years I am by no means being Afro-pessimistic ago. Tis level of improvement needs when I suggest that we do not live in the to permeate throughout all of the various most predictable of political environments government departments and local at present: it is absolutely true that our authorities. If by, say, 2014, we do not see a he recent volatility within the South national government remains committed marked improvement, it would quite African economy has caused many an towards maintaining an healthy free market reasonable of us to assume that we shall Tinvestor to question the future of our environment in South Africa but it is their never establish an environment conducive to commercial property’s investment potential. ability to implement the National Development sustainable commercial property development. Plan and encourage business confdence that General economic risk Commercial property has always been a long- provides their most difcult challenges. term investment opportunity and (apart from Some unfortunate news is that neither the a very lucky few), most investors in this sector We have noticed several recent commitments world economy nor our local economy is know that they are in this asset class for the from our national government to improve skill growing at a meaningful rate at present. Since long haul. Te long haul, as it now turns out, levels within the various departments and to the credit-induced crisis of 2008 and 2009 and appears to have extensive risk and investors root out and prevent further corruption but the following European Sovereign crisis which want to know whether their money shall be safe the implementation of these ideals still remains has prevailed since 2009 (and still endures beyond a year or two, given that the average vague: this, in turn, leads to a level of mistrust today), foreign investment into our local investment horizon for commercial property within the private sector and, consequently, a economy has been subdued. Most recently, we remains approximately eleven years at present. lack of business confdence. have seen a distinct selling of of our local bonds and equities, including property shares. Te answer to our concerns lies in being able to A meaningful way to determine whether our predict and interpret the political and economic incumbent national government – and, most Our economy, at present, lacks a catalyst trends that present themselves. Sometimes probably, the government for the next ten years which can reignite the meaningful growth that these trends can be matched to historic – will encourage a suitable environment for our we experienced during the period 2003 to 2008 circumstances which have played out so as to property sector is to monitor and take cognisance (confdence and world economic growth) and see when the economic might improve. Tis, in of the following key issues: 2010 (the Soccer World Cup). turn, permits us (as investors) to invest at the 1. Te national government’s tolerance for robust commencement of the upward-bound cycle. and publicised public debate and constructive Our economic growth has hovered around criticism: if, for example, the Protection of at a slow 2% in recent quarters and infation However, as has happened frequently in the Information Act is signed into law and used has threatened to transgress the 6% boundary recent past, external events (termed market- to curtail investigation into government that we have set ourselves. Our saving grace shocks by economists) have presented themselves activity, then our future suggests a marked has been that our prime and linked interest to the detriment of our predictions, establishing level of distrust and both local and foreign rates have remained comfortably low at 8,5% an unpredictable and volatile environment for investment shall decline as the blanket of which has helped to induce some property us. Te economic future is largely unpredictable darkness covers state activity; sector growth. but it is possible to recognise certain trends and 2. Te national government’s ability to factors that will infuence our ability to obtain a implement the various national infrastructure Our rand exchange rate to the major currencies sustainable (and, yes, meaningful) return from and construction capital expenditure projects in which we trade has fallen significantly in commercial property. which it has identifed as being necessary to recent months. Tis has partly been as a result 42 August 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

COMMERCIAL of the developed nations adjusting their Te three key factors which would bode well PROPERTY TYPE TOTAL RETURN diversifcation strategies but some blame must also for increased take-up in commercial property All property 15.20% be apportioned to the lacklustre outlook presented are (1) a decrease in the number of liquidated Retail property 17.10% by our own national government following the companies during 2013, (2) an increase in the Ofce property 11.90% problems within our resources sector. number of new frms entering the market and (3) a decline in unemployment. Industrial property 15.90% What will determine our property sector’s Consumption risk You will immediately notice that despite our future includes the following key outcomes: For the purposes of this article, I mean to refer slow growth rate in the general economy (please 1. Whether our general economy grows at an only to private household expenditure: growth see diagram 1), commercial property continues to average rate in excess of 3.5% per annum in this regard has slowed to a very low of 2.3% remain strong – provided, of course, that you are for 2013: readers are asked to note that a in recent months with expenditure on durables invested in the correct property and manage the current growth rate of approximately 2% is (that which lasts longer than one year) declining property optimally. anticipated during 2013 but that 3.5% to 5.4%. is required for the property to encounter Te positive news emanating from our property meaningful organic growth (please see An household debt-level (measured against sector is that non-residential building plans passed diagram 1, below); disposable income) of 75.5% is entrenched in our have increased by some 33% year on year (an average of 11% per month) for the frst quarter of 2013. Te Diagram 1: South Africa’s GDP growth in recent years signifcance of this is that developers have perceived 16.00% the increased need to obtain approval for new 14.00% (commercial) buildings and this means that they have anticipated improved demand for such space. 12.00% 10.00% An interesting trend in South Africa is the growth in our citizens who now shop online: 54% of South 8.00% Africans use the Internet for online shopping of 6.00% some sort, according to a Mastercard 2012/3 survey. Although this compares favourably to, for example, 4.00% Egypt at 36%, Morocco at 18.5%, Nigeria at 18% 2.00% and Kenya at 8.5%, it indicates a trend towards reduced shopping centre activity in favour of online 0.00% retail activity. 2.00% 2005 2008 2009 2010 2011-Q12011-Q22011-Q32011-Q4 2012 2013-Q1 Te risk of fxed property is whether demand for GROSS DOMESTIC PRODUCT PRIME INFLATION this commodity remains as strong as it is now. And, 2. Whether our resources and agricultural society and this means that private household so, the benchmarks to monitor as far as our property sectors stabilises in the immediate term and consumption expenditure shall remain under sector is concerned are: begins to contribute meaningfully towards pressure for many years to come. 1. Growth in building plans passed (which should be our gross national product. A growth rate at least 5% per month) and growth in building in resources of 6% and in agriculture of 12% The principal significance of this is that, if plans completed (which needs to eventually equate is required to support our overall growth consumption expenditure remains subdued, so 5% per month); rate; will manufacturing growth (and the associated 2. Te income yields being achieved throughout 3. Whether our manufacturing sector posts demand for factories and warehouses) and even commercial property and which currently meaningful growth of around 6% this year; the tertiary sector’s take-up of ofce space. averages at 10.6%; 4. Whether the improvement in plans passed 3. Te vacancy levels within our property continues to register at above 5% per month. Te key variable to watch in this instance is developments which are close to 20% within the Although plans passed is a measurement retail sales growth which was most recently ofce sub-sector but measure, on average, close to directly related to the property sector, it is recorded as 1.9% (in April, 2013) and as 2.7% 0% in the retail sub-sector also a sign of revived confdence in our (in March, 2013). A desirable level of growth in 4. Te level of take-up vs new or additional space economy. this regard is above 6%. available throughout our land. Trading risk Property sector risk It is our considered opinion as this article goes to An improved economy delivers an environment Investment Property Databank indicates that publication that commercial property remains a very, conducive to improved trading conditions for our the recorded commercial property sub-sector very good investment opportunity. local businesses. Tis results in fewer liquidations returns for 2012 (across their collated data) were RESOURCES and less unemployment. as follows: Courtwell Consulting www.reimag.co.za www.reimag.co.za August 2013 SA Real Estate Investor 43

DEVELOPING BY TONY COLLINS Behind The Development Process Your journey begins here he development process is seen as a self the period. Furthermore, the back-log in mortgage debt obligations, therefore, pressurising initiated proactive process of procuring housing demand from the war years, combined investors to restructure their portfolios. Twork with the tendering / bidding for work with persistent inflationary increases in the seen as a possible alternative. We will therefore value of real property, led to even the most In South Africa, institutional investors without cover the steps in the development process and poorly planned projects being reasonably exception are now insisting on a professional discuss risk at various stages in the development successful. Tis was also a period represented by approach when being offered properties process. In addition, because of the magnitude of unbounded enthusiasm on the part of investors. for purchase in order to avoid the pitfalls so this subject, the practical aspects on how to speed common with wrong decisions concerning up the decision-making process for developing a In the United States of America this situation property investment. This attitude should be property will be emphasised. A rational approach altered in the 1970’s when a great demand adopted by all developers to avoid the roller- to feasibility analysis is recommended with a total for borrowed funds on the part of the federal coaster ride they often experience, earning good approach view of the feasibility process using government, coupled with increasing demand profts on some projects interspersed with losses analysis by computer spreadsheets. for capital from rapidly expanding foreign on other projects. However, in South Africa industries, created competition driving interest we are fortunate to have good publications that The necessity for investment analysis rates to record levels. Te failures of real estate assist with macro and micro economic decision- According to Greer and Farrel (1988, p. 4), prior related companies and fnancial institutions that making such as the “Rode Report” and the to 1970 real estate investors paid little attention followed were expensive and painful experiences. “Stellenbosch University Bureau of Economic to property investment analysis. Proftability Furthermore, during the same period, existing Research Report”. “Figure 1” illustrates some was virtually assured by remarkable growth properties also came under pressure from of the controllable and uncontrollable economic and expansion in the housing, ofce, industrial escalating operating costs that were not factors to consider. and commercial accommodation industry that cushioned by slow increases in rental rates. Te Fortune magazine also sounded a warning against experienced few financial difficulties and an consequent reductions in net operating income injudicious over-development of the property almost insignificant failure rate throughout caused many investors to be unable to meet their market, by reflecting vacancy rates averaging 44 August 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

COMMERCIAL Micro And Macro Economic Maritz's Steps In The Factors Affecting The Investment Process Figure 2 diferent angles: an idea in search of a site (as Property Market Figure 1 per “fgure 3”) and a site in search of an idea (as a) Analysis of the needs, requirements, objectives and resources of the investor per “fgure 4”). In this stage you formulate your UNCONTROLABLE FACTORS objectives and prepare a feasibility study. World National b) Economic socio-political situation factors Use Known / Site To Be Physical inspection of a selected property, or c) selected properties Determined National Figure 3 Economic Government factors Market Identify Site selection Property type Property legislation d) & quality location Analysis (delineate) within sector CONTROLABLE FACTORS Demand sector Price, Rent & Timing & Legal e) Costs Promotions factors Quantify f) demand / Establish a supply within trade area a trade area Town g) Decision-making Planning & local building type management decisions. The market legislation Estimate capture Estimate study is perhaps the most important single penetration absorption element in the planning process, which is 18,8 percent in the United States of America, often neglected and is also the most difcult Marketability Financial whereas in 1981, the average vacancy rate was 4,8 element to conduct, and the one element feasability after tax percent. In isolated cases new ofce complexes had which should be dealt with most thoroughly, individual vacancy rates of between 50 and 100 since property developments must be Use Known / Site To Be percent. Investors and financiers would do well market driven. Therefore, what is required Determined Figure 4 to heed the warning signs and do their homework is a rational approach to investment analysis properly with respect to market analysis. “Figure 2” incorporating a series of steps for the gathering Market Site study / Preliminary Analysis (physical highest & is a diagrammatic representation by Maritz (1983, p. of information, the analysis of the information feasability) best use study 288) of the steps in the investment process. and the taking of a decision on the basis of this analysis. Te result is that the characteristics Quanitity Trade area A rational approach to investment of an investment property are considered demand / analysis Examination of supply in trade analysis area & (alternative alternative uses objectively and related directly to an investor’s uses) alternative uses Of utmost importance to all investors in this needs. process is that the investor is faced with an Marketability array of alternatives that difer according to Te frst step in the development process is capture / Financial Highest and best use penetration feasability amount, timing and certainty of receipt and an initial plan. Tink of the 5 P’s of planning: absorption after tax analysis therefore, the determination of relative values property planning prevents poor performance; a of investment alternatives also difers. well thought out plan will give you a solid basis You have now completed the frst phase of your Approaches of investors to investment from which to work. Te initial planning stage development, in the next edition we will cover analysis vary from being cautious and will be initiated by an idea that the developer the next step in the development process, looking analytical, to seat of the pants / gut feeling has on how to make money and can take on two at the objectives. RESOURCES Tony Collins www.reimag.co.za www.reimag.co.za August 2013 SA Real Estate Investor 45

LISTED BY IAN ANDERSON It’s Not Just Window Dressing Listed investment takes home the prize outh Africa’s listed property advanced moving above the SARB’s targeted rate. investor nervousness about the prospects for 4.4% during June, despite investor fears Higher infation and higher economic growth emerging markets. Sthat global bond yields could rise further are positive for the listed property sector as they as the US Federal Reserve ‘tapers’ its bond lead to higher rentals and distribution growth Te current forward yield on the listed property purchases. The South African equity market over time. sector is 6.8%, which is approximately 90 basis declined 5.7% in June and, as a result, listed points below the yield on a 10-year government property is now the top performing major asset Tis time around, the reasons for the increase bond. Historically, the listed property sector class in South Africa in 2013, having risen 8.8% in bond yields are not linked to an increase in has traded on forward yields far closer to the since the beginning of the year. infation or growth expectations. Rather, bond 10-year government bond yield. Current pricing yields are rising to more normalised levels due to therefore provides little downside protection Before investors get too excited about the the imminent withdrawal of monetary stimulus should local bond yields rise in response to prospect of a rapid recovery in the listed property by the US Federal Reserve, which has kept higher global bond yields or a further bout of sector, it should be noted that the prices of global bond yields artifcially low in an efort to Rand weakness. Growthpoint Properties (+5.2%), Hyprop stimulate economic growth. Investments (+5.8%) and Redefine Properties The average yield on the sector masks the (+4.9%) were all pushed in the final hours of It therefore stands to reason that the recovery fact that there is still a number of smaller listed trading in June, most probably as a last-ditch in the listed property sector may take longer to property companies ofering investors extremely efort by fund managers to ‘window-dress’ their materialise, or may never materialise if bond attractive initial income yields in excess of 8%, as quarter-end performance. yields remain at these higher levels or continue well as attractive distribution growth prospects to move higher. Since the listed property sector in excess of 9% per annum over the next three Historically, the listed property sector has peaked on 17 May 2013, prices have on average years. A diversified portfolio of smaller listed bounced back quickly from rapid price pullbacks. declined by 10.8%. However, on 24 June 2013, property stocks is likely to deliver returns of Since the start of the new millennium, South they were down as much as 19.4% before being between 15% and 20% per annum over the next Africa’s listed property sector has corrected on pushed higher in the fnal week of June. three to fve years, despite the expected increase three previous occasions, each in response to in both bond and listed property yields. unexpected increases in ofcial interest rates, ie Most of the price volatility was experienced increases in the repo and prime overdraft rates. in the larger, more liquid listed property Notwithstanding the short-term risks posed On each occasion, the listed property sector companies that have attracted a significant by higher bond yields, listed property in South has declined by approximately 20% over a three foreign shareholding over the past five Africa continues to offer investors an initial month period, before recovering those losses in years. From the peak in May, the price of income yield in excess of inflation, as well as the next three months. Growthpoint Properties fell as much as 22.9%, infation-beating growth in that income stream. Hyprop Investments declined 16.0%, Redefne In the long term, inflation-beating income Te unexpected increases in ofcial interest Properties declined 21.5% and Resilient growth translates into infation-beating capital rates that sparked the previous sell-ofs were Property Income Fund dropped as much as growth and long-term investors would be well always in response to an increase in consumer 18.7%. All four stocks recovered strongly in served by maintaining a healthy allocation (15% inflation above the South African Reserve the fnal week of June. Tese companies remain to 25%) to listed property in their portfolios. Bank’s (SARB) targeted rate, or to cool a susceptible to further foreign selling on the RESOURCES rampant economy to prevent inflation from back of higher local and global bond yields and Grindrod Assett Management 46 August 2013 SA Real Estate Investor www.reimag.co.za

MANAGING YOUR PROPERTY ONE PIECE AT A TIME Catering for both Property Owners and Agents, Nikita is an extremely powerful yet easy-to-use application that is geared to manage your Property Portfolio in the most effcient manner, every step of the way. www.nikitasoftware.com Toyah Gawne +27 11 745 5901 www.reimag.co.za

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