Understatement of note
HOPEFULLY, the numbers quoted in Vic de Klerk’s 6 May Money Clinic report of a “R930m buying price” for a 30 000sq m shopping mall are inaccurate, failing which his “Explain, please” request could be an understatement of note.
On those numbers a leasable square metre costs R31 000, which – aside from being grossly overpriced – requires an average net rental of R258,33/sq m to deliver a 10% year one return. However, for the uninitiated property investor that sort of average is sadly far beyond the realms of smoke and mirrors.
It appears to be too late for investors to conduct a reality check but, viewed from another angle, if on the bullish assumption an average net rental of R115/sq m can be achieved, capitalising the income at 10% suggests a year one investment value of around R414m.
A discounted cash flow valuation may improve that value by a few percentage points but, either way, the numbers in the report if correct imply a potentially painful property investment experience and underline the need for unsophisticated property investors to understand the fundamental difference between cost and value.
The well-known property group Rode and Associates did value the property at around R450m, very close to your estimates. WANT TO SEE my personal share portfolio? No, no – everyone would find it a huge joke.