An Investor’s Guide to Durban
BY KENDAL COWARD
Seventeen years ago, I started investing in Durban’s CBD, during that time I have seen the market change drastically, experienced the excitement for what is happening right now and the future plans rolling out.
Durban has played second fiddle to Cape Town for too long, we are finally experiencing the tide turning as the spot light is now firmly on rejuvenating and upgrading Durban’s CBD, where property prices are still relatively “cheap” when factoring the rental yield.
A lot of the properties offer investors a positive cash flow from day one, with the rentals covering your monthly bond, levy and rate repayments. With the low property values this allows for a low financial entry with values under R900,000 incurring no transfer duty.
Prices start as low as R250,000 for a bachelor flat with rental income from R3,500. One bedrooms from R300,000 with rentals from R4,000. These properties are in high tenant demand, however larger two or three-bedrooms are equally in demand as tenants can rent on a “per room basis” between R2,000 and R3,000 which increases the return on investment and lowers the risk, if one tenant leaves or fails to pay income is still received from the other tenants.
The type of tenants looking to rent in the CBD are working singles, in transition finding employment at large Government departments such as the various municipalities, SARS and Transnet, hospital staff or the many call centres throughout the city. Tenants earning R20,000+/month are looking to rent a bachelor flat for R3,500/month, greatly reducing the tenant to rental affordability risk when compared with the same tenant wanting to rent entry level apartment in Umhlanga for R7,000. From my experience over the years managing rental properties, if tenants are credit checked thoroughly I have had very few issues, with rentals being paid timeously. With the shortage of rental accommodation throughout the CBD tenants try to remain in good standing to hold onto their places.
The Municipality, through Invest Durban have identified 100 problem buildings within the city, that harbour crime, drugs and over-crowding, the clean out has begun and the first building on South Beach (Rutherford St) was demolished last week as part of the rejuvenation project. A lot of these buildings are found in the Point area which is an important area to clean up to connect the drive through the City into the Point Waterfront Development and uShaka Marine World. This project has already had an impact on the market with prices increasing in the South Beach and Esplanade (Victoria Embankment/Margaret Mncadi Avenue) areas which offer world class views of the beachfront and harbour.
With this, Durban has attracted major players in the industry who specialise in uplifting an entire city precinct, such as Florida Road, buildings around the Courts on Durban Club Place and The River Town precinct between the ICC and the beachfront. A Malaysian company is in joint venture with Durban Point Waterfront Development Company and the beachfront promenade extension is planned to be completed this year, which will allow residents and tourists to move from the harbour entrance to Umgeni River.
AREAS TO INVEST IN:
Although there is opportunity throughout the city, I personally believe there will be real growth on South Beach and The Esplanade.
South Beach – this borders on the Point Waterfront Development and a lot of investments are taking place in the Point area entering this zone, so prices will spill over and with it work opportunities and people will want to buy and live close to work. Together with the lifestyle offered along the beachfront.
Esplanade (Margaret MnCadi Avenue/ Victoria Embankment ) – most of these buildings are in good condition and well run, they offer unparalleled views over the harbour. New restaurants (9th Avenue Bistro) are relocating to the yacht mall and Wilson Wharf is very popular. It is also an easy walk into the heart of the City Centre.
What makes a good investment in the CBD and things to check when doing your due diligence:
- Financials – make sure the financials are under control and the block is well managed, the financials can be obtained from the Managing Agents or the Body Corporate.
- Body Corporate – is it active and on top of maintenance in the block? Is there visible security with measures in place to control overcrowding (Eg turnstiles or finger print access).
- Type of tenants in the building – are the tenants mainly students? Do the tenants sub-let?
- Working lifts – lifts must be in working condition and well maintained in order for banks to lend in the building. Good tenants won’t stay in a building where they have to climb stairs. If the lifts need replacing you need to plan for special levies.
- Condition – look at paint work, spalling, pipes, windows, common areas.
It’s not often one finds a double win/ strategy of great rental returns with above average capital growth. At the moment Durban CBD is offering both.
When you take Durban’s world class attractions of the Golden Mile Beachfront, year round climate, 2 hours’ drive to the Berg & Bush, the vibrant people that make up the city and add the Municipality is investing together with Private Sector you have a perfect combination for great capital growth and a paradise to live in…
Examples of R.O.I. I have achieved:
- John Ross House – (Margaret MnCadi Avenue/ Victoria Embankment) (Esplanade) Purchase price for a 1 bed 54m2 apartment – R300,000
R3,000 Bond (assume a 100% bond)
R 200 Rates
R4,200 Monthly cost
R5,000 Rental income
Cash positive R800 / month
Return on Investment (Purchase Price of R300 000) 20% + Capital Growth
Net Return on Investment (Transfer and Bond Costs of R25,000) = 38.4% + Capital Growth
(R800 profit or cash flow a month x 12 months = R9600 / R25,000 outlay = 38.4%).
2. Rond Vista (Mahatma Gandhi Road/Point Road) Purchase price R80,000 cash R1,400 Levy R0 Rates (below the Municipal valuation) R1,400 Monthly cost
R3,500 Rental income
R2,600 profit is a net 39% ROI and the property has doubled in value in 18 months.
30 months to repay the Capital outlay of R80,000 – assuming no rental escalation. (which reduces the risk factor).
This building is right in the area that the Municipality is upgrading and on the drive into The Point Waterfront Development and uShaka Marine World, which will see constant demand from both tenants, investors and end users alike.
The advantage of these priced investments is that one can buy several to build a property portfolio, and achieve a far higher return on investment and spread the risk. I.e. Instead of buying one property for R1mil in a more affluent area, one could buy 4 bachelor flats at R250,000 (remembering the supply and demand favours the lower end).