Property Advice

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Q&A

Q: I’m interested in investing in industrial property, what are the numbers saying about this asset class? 

Kobus Lamprecht, Economist with Rode & Associates

A: 

Most major industrial areas had a solid rental performance at the end of 2017. In the fourth quarter of 2017, nominal market rentals for prime industrial space (500m²) in the Cape Peninsula again performed the best of the four major industrial regions in South Africa, with yearly growth of 14%. Top areas in this region include Brackengate (R75/m²), Paarden Eiland/ Metro (R67/m²) and Woodstock/ Salt River/ Observatory (R66/m²). Rentals in Durban, Central Witwatersrand and the East Rand grew by 7%, 6% and 4% respectively. Durban remains the most expensive nationally, with an average rental rate of just below R60/m² for prime space of 500m². The major industrial areas all have low vacancy rates below 10%. Vacancy rates in other industrial areas, such as Pretoria, Port Elizabeth, Bloemfontein and Nelspruit, average comparatively higher between 10% and 20%.

Q: I’ve read a lot about converted container homes – what are some of the things to look out for before making a decision? 

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa 

A:

The reality is that while the container itself is far more affordable than the traditional bricks and mortar building costs, purchasing vacant land – particularly in areas where regulations allow container homes to be erected – is still a costly and somewhat complicated thing to achieve

Most banks are reluctant to provide financing on vacant land, as they view it as a high risk investment. As a result, the best deal a buyer can usually secure is a 60% bond. The rest will have to be sourced from their own savings, or by taking out additional credit elsewhere (which would increase the likelihood that the bank will deny the home loan application). This explains why the trend is only getting picked up by the middle to higher income sector rather than by low-income buyers.

Q: I am looking to move back into my property, but I currently have a tenant. What steps can I take? 

Simon Dippenaar, Founder and Director of Simon Dippenaar & Associates 

To some extent, your rights as landlord depend on what is in the lease agreement.  Under PIE, your tenant is protected against illegal eviction. The Consumer Protection Act (CPA) provides a further layer of protection. In terms of the CPA a tenant is protected for the full term of the lease if there is no material breach on their part. The landlord can cancel the lease if there is a material breach of contract by giving 20 business days’ notice of the breach; but the landlord must give the tenant the opportunity to remedy the breach. Provided they do so, you don’t have the right to evict the tenant and move back in until the end of the contract.

However, when drawing up the lease, it is permissible to include a clause allowing the landlord to cancel the lease, with two months’ notice, if the landlord elects to sell the property or move back in. If the tenant agrees to this clause and signs the contract, then there does not need to be a material breach for the landlord to give notice of eviction, nor is the landlord in breach of any aspect of the tenant’s rights. Without this clause, the tenant is protected upon the sale of the property and the sale can have no impact on the tenant’s right to hold the lease until it expires.

So if you are drawing up a lease agreement for a new tenant and you think you may wish to sell the property in future or resume occupancy for your own purposes, it’s probably wise to include a clause of this nature. 

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