Financial Mail - Investors Monthly - - Opening Bell - Property In­vest­ment edited by Joan Muller

Leonardo hits new heights

Three lux­ury pent­houses with price tags of R45m apiece have al­ready been sold off­plan at exclusive mixed-use de­vel­op­ment, The Leonardo, which is set to be­come Sand­ton’s tallest build­ing on com­ple­tion within two years.

190 apart­ments with a to­tal sales value of R1.1bn have been sold at the Legacy Group’s and Ned­bank’s new sky­scraper, which is un­der con­struc­tion in Maude Street, a stone’s throw from the JSE. Six of the build­ing’s pro­posed 42 storeys have been com­pleted.

Legacy Group sales di­rec­tor Gijs Fo­den says the de­vel­op­ment is al­ready sold out up to the 33rd floor. When The Leonardo was first launched just over a year ago, prices of one-bed­room apart­ments started at R3.2m in­clud­ing Vat (or R45,000/m2). Apart­ments span­ning floors 28 to 31 were re­cently brought to the mar­ket at R4.1mR16.m in­clud­ing Vat. Eight pent­house apart­ments sized be­tween 540m2 and 600 m2, of which three have al­ready been snapped up, are sell­ing for be­tween R40m and R45m. Fo­den says this trans­lates to R60,000/m 2- R68,000/m 2.

De­mand has been so strong that the group is con­sid­er­ing ex­tend­ing The Leonardo from 42 to 52 storeys. It will in­clude five storeys of sec­tional-ti­tle of­fices, a res­tau­rant, busi­ness cen­tre, re­cep­tion, gym, play school, spa, lounge, pool, as well as re­tail out­lets.

Fo­den be­lieves sales at The Leonardo has been driven by the de­vel­op­ment’s life­style of­fer­ing cen­trally lo­cated in SA’s prime busi­ness hub, within walk­ing dis­tance of the Gau­train sta­tion and Sand­ton City.

“The ma­jor­ity of buy­ers are lo­cals who view The Leonardo as a se­cure, life­style in­vest­ment with strong cap­i­tal growth po­ten­tial.”

Fo­den says the Legacy group has a proven track record in Sand­ton. In­vestors in the group’s other Sand­ton de­vel­op­ments — The Michelan­gelo Tow­ers, The Raphael and The DaVinci — all on Nel­son Man­dela Square, have in re­cent years reaped huge cap­i­tal growth, which Fo­den says un­der­scores the de­mand for apart­ment liv­ing in the Sand­ton CBD.

The de­vel­op­ment’s pièce de ré­sis­tance is a 2,700m2 triple-storey pent­house — The Leonardo Suite, on the mar­ket for R250m. The lux­ury abode at the top of the build­ing will have a 900m2 rooftop gar­den, a 20 m lap pool, a pri­vate lift, staff quar­ters, six garages, a gym, a cin­ema and an en­ter­tain­ment area. If the Legacy group fetches its ask­ing price, the de­vel­op­ment will set a new SA sec­tional ti­tle record. The high­est price paid to date for an apart­ment is be­lieved to be R110m (2008) for a 1,076 m2 pent­house at the One&Only Water­front ho­tel in Cape Town.

Res­i­den­tial ten­ants suf­fer

There has been a grad­ual de­te­ri­o­ra­tion in ten­ant pay­ment per­for­mance na­tion­ally, no doubt due to con­tin­ued pres­sure on house­hold bal­ance sheets.

Lat­est data from credit bu­reau TPN shows the num­ber of res­i­den­tial ten­ants who pay rent late or only par­tially has risen from about 27.5% at the end of 2014 to 34% in the first quar­ter of 2017. TPN says the de­cline in ten­ants in good stand­ing — those who pay rent in time and in full — since late 2014 co­in­cided with the start of the lat­est in­ter­est rate hik­ing cy­cle. Rates in­creased by two per­cent­age points from early 2014 to early 2016.

How­ever, TPN says the per­cent­age of ten­ants who do pay in full and on time is still above the record lows of 2008. “First, the most re­cent in­ter­est rate hik­ing cy­cle has been far more mod­er­ate than the pre­vi­ous hik­ing cy­cle from 2006 to 2008. Whereas the prime rate peaked at 15.5% in 2008, it now is a far lower 10.5%. Sec­ond, though the eco­nomic growth and house­hold dis­pos­able in­come growth rates have slowed in re­cent years, they have not con­tracted as sharply as in 2008-2009.”

Cape Town ren­tals ahead

There is still ro­bust de­mand for rental ac­com­mo­da­tion in the West­ern Cape, judg­ing by the solid 12.53% rental growth recorded in the prov­ince in the first quar­ter year on year, lat­est FNB fig­ures show.

That com­pares to a more muted 4.71% for SA as a whole. Gaut­eng per­formed slightly bet­ter than the na­tional av­er­age at 5.74%; KwaZulu Na­tal lagged at 2.71%.

FNB property strate­gist John Loos be­lieves much of the hous­ing mar­ket strength in the West­ern Cape, es­pe­cially Cape Town, is be­cause it has mar­keted it­self suc­cess­fully as a life­style des­ti­na­tion and one that’s well man­aged and run.

“The re­sult has been a strong mi­gra­tion of mid­dle to higher-in­come house­holds to the prov­ince, which has ex­erted up­ward pres­sure on its house prices.”

Loos says the on­go­ing mi­gra­tion to the West­ern Cape of a com­bi­na­tion of work­ing and busi­ness peo­ple, as well as re­tirees, is vis­i­ble in FNB’s stud­ies of re­peat home buyer mi­gra­tion be­tween prov­inces.

FNB es­ti­mates show the West­ern Cape had an es­ti­mated net in­flow of re­peat home buy­ers of +12.2% of to­tal re­peat home buy­ing. Gaut­eng had a net out­flow of re­peat home buy­ers of -3.2%. The other ma­jor prov­inces didn’t fare much bet­ter.

Loos says the up­ward pres­sure on house prices this re­peat home buyer mi­gra­tion has caused has con­trib­uted to af­ford­abil­ity chal­lenges for many in this rel­a­tively land-scarce prov­ince, es­pe­cially (but not only) younger, as­pi­rant first-time buy­ers, which is sup­port­ing rental de­mand and there­fore rental growth.

An artist’s im­pres­sion of The Leonardo (far left), set to be­come Sand­ton’s tallest build­ing

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