Just 35 years ago, Sandton's town centre was a cluster of commercial and municipal buildings overlooking a single-lane Rivonia Road, with veld stretching off into the distance.
Construction was starting on a huge mall called Sandton City.
Today, Sandton CBD is the most affluent concentration of corporate activity and arguably, the most powerful financial district in sub-Saharan Africa. It achieves some of the highest rentals in SA.
The lesson? Never underestimate the vision of property people.
A weed-strewn inner-city building may look like a disaster to you, but an astute property investor sees an apartment block, with a trendy coffee shop.
Why? Because property experts see the spaces between the buildings, they can sniff out the opportunity to buy low and sell high, and most of all, they can visualise new spaces.
HERE'S THE THING
Property is about the "where" of everyday life: where people want to live, work and play. And that "where" can shift.
Property owners in Yeoville or Bellevue in Johannesburg in the mid-1990s lost money because the neighbourhood degenerated so quickly. Today, that value is returning.
That's another secret that property people understand. The market always turns, and timing is critical.
An example is Soweto. It was anathema to investors until very recently. Today, every retail developer worth his salt is snapping up available land.
And here's another tip: property can revitalis e. We've seen that happen with city improvement districts, which have injected urban-management structure into urban nodes.
Catalytic developments like the Constitutional court in Braamfontein have sparked a wave of gentrification in previously degenerated areas.
And the much-vaunted Gautrain will have a widespread impact on property, especially around the stations.
WHY GET INTO PROPERTY?
Investors like property because it offers a regular, long-term, income stream plus the potential for capital growth.
There aren't a lot of investment products that offer this dual advantage. But to understand property, you need a keen nose for the idea of value.
The bottom line is that where there is no demand, there isn't much value in property.
The usual way to assess a property's appeal is to calculate the initial yield, or the net rental income divided by the value of the property. So a R1m office building in Eloff Street with a net rental stream of R100 000 is achieving an initial yield of 10%. The initial yield is an indication of the risk inherent in the investment and its location.
So, a premier-grade office block in central Sandton should have a much lower initial yield than a 10-storey residential block in Hillbrow. That's the risk-return relationship in action.
WHAT TO WATCH OUT FOR
Sounds easy? Property also has some real downsides which a wise investor will never discount.
Property is vulnerable to social and political fluctuations. Witness the demise of the Johannesburg city centre, only now recovering after 20 years of decline, or the rapid eastward decentralisation in Tshwane.
You can't just relocate a shopping mall or an office block if a node starts to degenerate.
Illiquid in nature, it is difficult to off-load property when the market takes a nosedive.
You can reposition a property for the changing user market. This was done in downtown Johannesburg during its decline: corporate tenants moved out, spaces were divided into smaller offices, and start-up businesses were targeted.
Property is management-intensive. It needs time and money to maintain. A buy-to-let apartment in Sandton is much easier to manage than a multi-billion rand listed property portfolio, but you still need to check up on tenants, collect the rent and fix problems.
And since there is no formal marketplace for direct property, information flows are poor. One dramatic advantage that listed property has over its direct counterpart is that stock market data is far more widely available.
But ask a landlord in Durban's city centre or the infamous Hillbrow flatlands whether the risk is worth their 30% initial yield, and you'll find few who will disagree.
Property has one other magic ingredient, and that is sentiment. Property can inspire a passion that other investments can't. You can touch a building. It's seldom that a friend insists on showing off her new bond certificate, but taking a drive past a prized new beachfront apartment - now that sparks some real excitement.
ALL PROPERTY SECTORS ARE NOT MADE EQUAL
Building a factory doesn't create jobs. Expansion and economic growth does. That means that shrewd property investment decisions are made on the back of key, sector-specific information.
Industrial property is influenced by proximity to freight airports, highway networks, rail and other transport.
Since industrial property is often owner-occupied, property investors need to understand the underlying business operation far more than in, say, the office sector. The risk of finding a replacement tenant is also far more dependent on the industry than the property market.
Make sure you monitor the retail-spending indicators and match them to household-savings data. Spending is affected by interest-rate shifts, debt levels, and changes in income.
Understanding consumer behaviour is critical to retail success. It's a complex market to research, and it's common to find investors or developers who specialise in this sector.
The major risks are competitive development and fickle consumers. Active cannibalisation of tenants has occurred in the SA sector in recent years, as competition grows.
Offices, too, have unique indicators. Prestige address is a key consideration, as is the proximity to amenities such as shopping or schools.
Traditional indicators include office employment and company liquidations. Vacancy statistics can provide an early warning that a node is leaking demand. Another good indicator is speculative development, a sign of developer confidence - or lack of it - in a node.
The sectors can work on different market cycles altogether. The apartment market in central Sandton boomed while the office sector went through a downturn; and the industrial market in Ekurhuleni continued to grow while investors scrambled to dispose of poorly-performing commercial properties.
SA PROPERTY ON THE GLOBAL RADAR
A new challenge for SA property is the global real estate world.
Research done by international real estate companies in the past year has spotlighted SA as one of the world's top-performing listed property markets; one of the most transparent property markets on the globe; and the institutional property market that posted the highest returns last year.
Researchers are sitting up and taking notice, and investors are likely to follow.
So it is a good time to grab your piece of the SA property market. This handbook will help you do it.
HOW TO BE AN ACTIVE INVESTOR
If you're bent on being a passive investor, you can go to chapter 10, page 56, and read about how to invest in listed property shares.
There are 25 listed funds to choose from, with a handful of property journalists and four or five property analysts to advise you on which of them offer the best value at any given moment.
Or even easier, you can move on to the unit trust funds of property funds, chapter 12, page 124, where you don't have to do any thinking at all.
In truth there are many markets, and no catch-all information source or magic formula can fast-track you to the riches e mbedded in them.
Everybody wants to be in property. A traffic jam of investors is pushing prices up and shoving returns down.
But don't be fooled into thinking that property is fundamentally different from a few years ago, and don't be tempted to dive in at any cost, in case you're the only South African left who hasn't made millions from property.
WHAT IS A GREAT INVESTOR?
There are two essential skills you need, says Peter Linneman, professor of real estate at the Wharton business school in Pennsylvania, US, in his textbook on the subject, Real Estate Finance and Investments: Risks and Opportunities. "[Understand] why things may fail to go according to plan, and what will happen when this occurs. This, and being able to say no, are what makes a great investor."
THE KEY ASSET TO ACQUIRE
When Lesley Wainer packs for the sea cruises that she and her husband Marc love to take, she places a large, black 1980s calculator in the suitcase on top of the clothes. First thing she does in the ship's cabin is to take it out and put it on the table at Marc's side of the bed.
"It's his security blanket, he can't do without it," she says. "Two or three times in the night he will suddenly sit up, grab the calculator and bash away at it and then fall back to sleep."
In seven years Marc, his calculator and his partner Wolf Cesman have built a R30bn empire of listed property funds that their company, Madison, manages.
But it took him 30 years to develop the critical asset that did it - his brain, of which the calculator is a small adjunct.
"Never forget that your brain is an extraordinarily sophisticated computer, as well as a great synthesiser of information," says Linneman.
"As your knowledge grows, this truly portable computer becomes more and more sophisticated, and effectively calculates risk based on your experience."
Marc got his knowledge by connecting his brain to his gut. This is where he and all the other property kings started out on their quest for empire.
Wainer tramped the streets of central Johannesburg.
This is by far the best way to get the knowledge and develop your "gut feel" for the right deal.
WHERE TO START
The best place to start is where you are, near your home or work, with something small, the initial cash outflow of which you, and perhaps a few partners, can afford to carry from your current incomes. Your advantage will be that you already know what is happening in that area.
Says Nedbank commercial property lending chief Frank Berkeley: "You must get knowledge first, before you can buy and expect to make money. If you buy first, you'll still get knowledge, but the person who you get it from will get the money."
It doesn't take long to be an expert in your chosen area. This starting point seems to go against the first rule of investment: diversify your assets to limit risk.
But Linneman gives the other side of this truth: "If you are in the real estate business, you are in the business of managing real estate risk," he says.
"Get to the point where literally nothing happens in your market without you knowing about it well before it happens," he says. "Never forget there is no short-cut to understanding a market.
Your deep expertise, rather than spreading your investments, is the route to eliminating risk in property. Knowledge is power and capital because you will soon be faced with other investors willing to give you a free 20% or 30% of an investment just for finding it.
GET USED TO DEBT
Competition by banks to finance property investment is more furious than competition among investors to buy property. Cheap and easy debt is driving the market. In SA, it is going to get cheaper. It can't get easier.
"We lend up to 110% of the price of a building," says Berkeley. "And our most expensive rate is 1% below the prime overdraft rate."
But the first hurdle you must cross to get a 100% loan from Berkeley is to have proper knowledge. "We look at the track record," he says. "But putting in equity helps." Wainer believes a first-time property investor with some other business record could get a 90% bond.
But both he and Green recommend reducing the bond as quickly as possible.
"Don't draw any of your positive cash flow from the property," says Wainer. "Use it to reduce the bond as quickly as possible.
"Then you use it as security for a bond on your next purchase and you're on your way," he says. You have a track record.
The chronic shortage of investment properties means you will also find more opportunities if you gain experience as a property developer.
