Correct valuation of property is critical, says Broll Auctions and Sales
Nimble and savvy property investors scanning the market for sound acquisition opportunities are currently viewing a vastly different property landscape from last year, says Norman Raad, CEO of 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. Certainly our most recent auction last month (February 2018) saw a good turnout, with a prime income-producing, 1 762sqm property in Norwood snapped up for R18 million by a local investor.”
Ideally 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 R3.2 million per annum.
Says Raad: “With Norwood rapidly becoming dubbed the ‘next Parkhurst’ with trendy little restaurants and shops opening at every opportunity, this property sold instantly.
“We believe that 2018 will bode well for buyers as more and more REITS (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 the opportunity for property investors to make calculated investments into a sector where over the past decade demand has been far greater than the supply.
“One key factor that must be taken into consideration is the valuation of these properties. When it comes to owner-occupiers, they would normally be more 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 with a rule of thumb, 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 out on any transaction for the simple and common reason that these sit with a book value far greater than their actual worth.
“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 that 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: “Try and obtain finance for a property, and you will soon see what the true value is on a property – it is almost impossible to achieve the values the sellers are asking. Private sellers have already become more realistic and adjusted their expectations in 2017.
“Last year the market conditions were tough as both the financial institutions and buyers were uncertain of 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 that the funding is easier and that buyers are prepared to pay, as we are still facing economic challenges and will continue to do so for the next two years.”