Hillbrow property gems promise brave investors great returns.

Posted On Wednesday, 06 August 2003 02:00 Published by eProp Commercial Property News
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Hands-on management, long-term commitment could deliver better yields than in northern suburbs.

Francois VirulyInvestors wanting good returns on residential properties, particularly flats, should not just consider Johannesburg's affluent northern suburbs because there could be some "hidden diamonds" in socalled no-go areas such as Hillbrow, Berea and Yeoville.

 However, an investor in Hillbrow, Berea and Yeoville will have to adopt a hands-on style of management to ensure decent returns, as risks are high.

 Johannesburg-based property economist Francois Viruly, of Viruly Consulting, says some of the best returns on residential properties are in Hillbrow, but hastens to add that these properties are not "handled by traditional property management companies".

 "It needs another approach. The northern suburbs are mainly about contracts, while the Hillbrow area is more about people," says Viruly.

 "If you can buy a flat for R50000 in Hillbrow and get R3000 in rental a month you're not doing badly. If you're looking for a real investment bargain, you've got a better chance of finding it in the Hillbrow CBD area, with the proviso that the rules of the property game in Hillbrow are different."

 Viruly says there are property managers who understand how to "play this game". He says the rental defaults in areas like Hillbrow may not be as bad as investors think.

 "Hillbrow has never changed in its function. It's always played a critical role for those who enter the South African property market for the first time and who are not connected to the system."

 Previously, immigrants from Europe used Hillbrow as a first port of call; now people from African countries are doing the same, says Viruly.

 Foreigners cannot get housing subsidies, so they rent. Hillbrow is attractive to them because it is very close to the central business district and job opportunities.

 "Sometimes the streets of Hillbrow have more diamonds from a property perspective than other areas. We talk about Hillbrow as a single entity. As with any node there are good parts and parts which are less attractive. The investor must try to find the micro location that offers attractive returns."

 Viruly says he knows investors who will not sell their flats in Hillbrow because the returns are so attractive. "You must know what you are doing." If you don't but are still interested, he says, turn to a management agency that has operated in this environment and knows how to play the game.

 Investor Kelly Clinton, who owns three blocks of flats in Yeoville, is happy with the returns on his investment. His blocks of flats contain a total of 63 units.

 "Blocks of flats can be acquired in Berea and Yeoville at initial yields of between 25% and 30%, provided you're willing to adapt to a different style of management," says Clinton.

 "You have to work harder at getting rentals. It's very easy to let the wheels fall off. It requires hands-on, continuous management."

 Clinton says the short-term capital gains are minimal, if anything. However, government's commitment to clean up Johannesburg is a "good sign" for medium to longterm prospects in the central business district and surrounding areas like Yeoville, Berea and Bellview.

 "You can pick up a small block of four units for R100000 in Yeoville. You pay R25000 for each unit. If you are collecting R1500 a month in rent per unit you'll be netting R800 a unit. Over a year that's R10000 per unit, and a yield of between 25% and 30%."

 Clinton says it is a "very lonely business. You have to make a commitment to the new SA for the long term to clean up areas which were problems."

 There will always be rent defaulters whether you invest in Yeoville or Sandton, he says.

 "It's a case of how you manage it. I've appointed a very small management company which is extremely hands-on. That's the secret of success. If you don't get it right it's a disaster waiting to happen."

 Neville Schaefer, CEO of Trafalgar Property & Financial Services, says it is better to buy an entire building if you want to lower the risk, as individual flats have a "very high risk".

 A lot of bodies corporate in Hillbrow, Berea and Yeoville are in arrears with rates and taxes.

 "When you buy a flat in the inner city area you have look at bodies corporate very carefully. Individual flats cost between R20000 and R25000.

 "Because they're redlined areas you can't get bonds."

 He says Trafalgar's criteria, when buying a block of flats in the inner city, include a minimum 24% return, with the cost of units ranging between R20000 and R25000 each.

 Schaefer says it is much easier to manage whole buildings because it gives you control over all the units.

 Returns on flats in Hillbrow, Berea and Yeoville are better than returns in more conventional investment areas, he says.

 "You have to have strong nerves. It also requires intensive management," says Schaefer.

 "If you own a block of flats and manage it correctly and very intensively, you can get much better returns than in the northern areas."      
   

Last modified on Monday, 19 May 2014 09:42

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