“We believe 2018 will bode well for buyers as more and more real estate investment trusts sell off their non-core assets or assets which don’t fit into the fund’s long-term plans and vision."
Savvy property investors scanning the market for sound acquisition opportunities are currently viewing a vastly different property landscape from last year, says Norman Raad, chief executive officer Broll Auctions and Sales.
“Over the past three months things have changed significantly, with a new order in government and a more optimistic outlook anticipated for the year. Our February auction saw a good turnout, with a prime income-producing 1762m² property in Norwood, in Joburg, snapped up for R18million by a local investor.”
Positioned in a sought-after location on the corner of William Street and Grant Avenue, with high passing foot and vehicle traffic, the building is fully let, presently grossing R3.2m per annum.
Raad says: “With Norwood rapidly being dubbed the ‘next Parkhurst’, with trendy restaurants and shops openingat every opportunity, this property sold instantly.
“We believe 2018 will bode well for buyers as more and more real estate investment trusts sell off their non-core assets or assets which don’t fit into the fund’s long-term plans and vision.
“Therein lies an opportunity for property investors to make calculated investments into a sector where, over the past decade, demand has been far greater than supply.
“One key factor that must be taken into consideration is the valuation of these properties. Owner-occupiers would normally be inclined to pay more than investors.
“However, when it comes to investments, properties should be valued in line with the value for which the bank would provide finance, and it would be prudent to measure this against a rate per square metre calculation.
“It is no surprise that most funds have been trying to sell the same assets for a number of years but can’t seem to close any transaction for the common reason that these sit with a book value far greater than their actual worth.”
Raad says property values need to be corrected as they are not in line with what the private sector would pay, hence the “drag and lag” of property sales and deals being concluded.
“One cannot assume the value of a vacant property is calculated as if it was fully let or on a long-term lease. Vacant buildings pose their own challenges and can be as much of a liability to any individual or fund, for the obvious reasons of ongoing monthly costs and the risk of vandalism.”
Raad advises investors “try to obtain finance for a property, and you will soon see what its true value is – it is almost impossible to achieve the values which the sellers are asking. Private sellers have already become more realistic and adjusted their expectations in 2017″.
He says last year market conditions were tough as both financial institutions and buyers were uncertain about South Africa’s future.
“However, this year, there seems to be a positive sentiment and buyers are finding their way back to market. This does not mean the funding is easier and the buyers are prepared to pay as we are still facing economic challenges and will continue to do so for the next two years,” Raad says.
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