Double-whammy investment for Sandton
Category Moneyweb
The large-scale facelift of Sandton’s commercial node will transform the city’s business and financial landscape as well as prospects for the surrounding residential properties.
Multinational corporations will move their headquarters into the area in the next three or four years, making it South Africa’s largest commercial node after the Johannesburg CBD. As such, the surrounding residential areas are poised for an appreciation in property values and demand.
This may, however, be a double-edged sword.
Read more about the commerical development here.
Property price outlook
Sandton is a great example of developed and developing commercial nodes driving up residential property prices, all because of their proximity to work and entertainment amenities, says Herschel Jawitz, CEO of Jawitz Properties.
The old adage “location, location and location” will determine the effect large-scale developments will have on residential property prices.
The area around Grayston Drive, Sandton Drive, Rivonia Road and Katherine Street will be affected. Residential suburbs like Benmore Gardens, Parkmore, Atholl, Sandown and Inanda are strategically located, with the commercial district, Gautrain station and Sandton City a stone’s throw away.
Lightstone managing director Andrew Watt says residential properties near the Gautrain station have seen between “2-5%” in annual house price growth, as opposed to areas that are not supported by any commercial developments. Watt explains that property prices tend to rise faster in areas closest to commercial development nodes, due to perceptions that they will be attractive places to live.
However, although higher property values in residential areas close to Africa’s richest squaremile seem imminent, there may be discrepancies in the supply of properties on the back of demand.
Jannie Wessels, commercial property manager of Seeff Properties, says there has been an oversupply of property in Sandton for the past “30-36 months”, coupled with the demand for prime space.
Wessels also says with the fast pace of the commercial development, Sandton has the capacity to deal with the demand for property.
He adds: “There is still a lot of inward bound growth possible and some undeveloped land is also awaiting new ownership. There is a lot of action coming over the next decade at least”.
Higher rates and taxes
While residential properties near commercial nodes are more expensive and more in demand, Sandton’s viability is a double-edged sword.
Managing director for commercial and industrial property consultancy Jones Lang LaSalle SA Craig Hean says there is strong demand for residential real estate in Sandton, resulting in higher valuations and higher rates and taxes.
Rates are determined by the value of the property. Homeowners are already forking out a lot of money for rates and taxes. They will feel the pinch should property prices continue to rise.
“However, if prices are going up quickly in Sandton and you get revalued, then theoretically your rates would go up more quickly”.
For example Watt says if a property's value doubles during a five-year period, the owner would only see the impact of higher property rates and taxes after a five-year review by the municipality.
Expansion of residential properties
Property developers need two things, says Watt, infrastructure approval and development finance. But banks are continuing to be cautious about lending.
The global financial crisis seems to have had a far-reaching impact on residential expansion plans. Ronald Ennik, CEO of luxury estates group Ennik Estates, says a number of residential areas were proposed for Sandton but fell through as the crisis unfolded.
“It is cheaper to fit commercial areas; residential areas are expensive,” says Ennik.
Parkmore, for example, has the potential to be expanded and there needs to be a firm distinction “about what is residential and what is not” as demand for office space in Sandton grows.
Unless Sandton’s residential areas are expanded in tandem with its commercial developments, it risks becoming a place of work, “busy during the day and dead at night”, says Ennik.
Already there are concerns that road and traffic infrastructure are not expanding to accommodate the influx of more people in the area. Wessels explains traffic into Sandton will double in the next five years, which might be a deterrent for home buyers.
“There must be a balance between density and traffic. There is a huge increase in density without the consideration of traffic,” Ennik says.
Property investment opportunities
In the midst of speculation on high property prices, as a Sandton property owner what are your options to make your property worth while?
Ennik says there are three options which include staying put and embracing the developments in a bid to capitalise on the valuation of the property, moving out or renting out the property.
It depends on what your objectives are says Watt. For instance if you own a property in Sandton and work in the area, it would be beneficial to keep the property and cut back on traveling costs to work.
“If you are an investor, it depends what you are looking for. Whether you are looking at capital growth or yield again it depends on your time frame,” he advises.
Watt also says there are property developers who will recognise that there is a lack of residential supply in that area and will price appropriately, leading to buyers “buying expensively and not [being] able to generate a yield”.
Author: Ray Mahlaka
