Property investment opportunities if you can identify value and mitigate risk

Property investment opportunities if you can identify value and mitigate risk

Vogue House, in Thibault Square in the heart of Cape Town CBD, is to be auctioned on May 24.

In uncertain times, opportunity beckons and fortune favours the brave, says Norman Raad, CEO of Broll Auctions and Sales.

“But I do mean brave, not reckless, and those who identify value and can make calculated assumptions and mitigate the risk with vision while giving due consideration to ‘what if’ situations.

“It has been a while since the uncertain political landscape has overshadowed the property bulls and market chasers. Who knows what the future holds, and sometimes it is good for an event to spark some movement and bring reality to a situation. I believe the past month has delivered just that, with the property bears selling short and the bulls finding what cash resources they have to seize the opportunities presented.”

Raad says the current period is no different from many other political and financial uncertainties the country and investors have faced before.

“Economists will usually state both sides of a situation, but will generally lean towards one. However current sentiment is focused more on the potential downside and the need to place one’s trust in a hedge against the rand. Saying that, direct property has always held its value more than any other investment over time and direct property investment could be the internal hedge investors are looking for.

“The corporate disposal process has already begun and non-core assets have recently found their way to the market. Properties that have no short term or long term investment strategy may well be a liability – as these corporates have recently discovered.

“The fact is, compared with between five and 10 years ago, property holding costs today have increased more than tenfold, with rates, security and electricity costs rising to untenable amounts just to keep the properties in acceptable condition. Overvalued properties seldom enjoy a reduction in rates which are a directly related cost to value, and when these properties are no longer core to investors and corporates, holding on to them increases liability.”

Raad says realistic market expectations are now the order of the day, with sellers accepting that property is not as liquid as stocks or shares.

“As a result non-suspensive offers carry far more weight and higher prices, higher valuations or promises by potential buyers or banks. A property’s value in cash is worth only what a buyer is prepared and can afford to pay for it.”

He says the next Broll multiple auction – at noon on May 24 at the Wanderers Club in Johannesburg – has some remarkable properties coming to the market.

“All properties presented at this auction are subject to a reserve, which, after serious consideration, has in each instance been adjusted to the current market and economic expectations.”

Among a number of prime properties which come under the hammer is the landmark Vogue House in Thibault Square in Cape Town’s central city, with a gross lettable area (GLA) of 4 230m2 including ground floor retail and 10 floors plus rooftop for use as offices or a hotel or residential conversion opportunity.

In Midrand, the Samrand Hotel incorporates a 112 room hotel with conference, dining and office facilities. This property is part of a corporate disposal as the property no longer forms part of the firm’s long term investment strategy due to the size and value. It has a GLA of 4 044m2, with each residential unit 31m2 in size and set on a 14 694m2 erf.

“Residential developers, schools and colleges will all find value in this property. Well located just off the Samrand off-ramp to Midrand , the property could be used for staff residences and training facilities. With a value of around R300 000 a hotel room, we expect the property to be comfortably sold on or before auction. Rebuild costs excluding the land are coming in at no less than R9 000/m2.”

A prominent retail and commercial building with a GLA of 6 300m2 in the heart of the Durban CBD is expected to be the most sought after property as the increased investment trend and demand to own in the greater metropolitans continues to increase. The competitive rentals to be charged in buildings in these areas of demand makes for a less risky investment. The Durban CBD property is ripe for a student or residential conversion, says Raad.

In Parktown, Johannesburg pristine offices with a GLA of 3 278m2 on a 3 689m2 erf are suited to an investor or corporate owner-occupier.

Show rooms in Bloemfontein – comprising 3 434m2 in the city’s busy Main Road – and 3 777m2 in Boksburg’s ‘mini motor hub’ are further property opportunities which Raad says should attract considerable interest, as well as 2 053m2 of warehousing with cold storage facilities for distribution in Bellville in Cape Town.