Sandton’s luxury-apartment demand falling - Moneyweb

NASTASSIA ARENDSE:  I’m sure you’ve seen, as you drive through the streets of Sandton, lots of buildings coming up, a lot of corporates moving into Sandton. I suppose this all started during the early 2000s, when the likes of Investec and Nedbank all moved in. But on the same side of that there are some high-rise luxury apartments that have piggybacked on this relocation of corporates into the area, which would in theory create demand from buyers who decided to live closer to work.

We have Kent Gush, who is the managing director of Kent Gush Properties, on the line to talk about Sandton’s luxury-apartment demand. Ken, thank you so much for your time.

KENT GUSH:  Good evening, Nastassia. Thank you for having me.

NASTASSIA ARENDSE:  I see this all the time – some properties coming up around the corner, especially the luxury apartments. They look absolutely beautiful. But what I want to know is what the demand is like for these apartments at this current stage.

KENT GUSH:  As in my article, which many of your listeners may have read on Moneyweb or seen in The Citizen, demand has been under pressure. It’s very much a sentiment-driven thing. A large number of our purchasers buying into those beautiful buildings in Sandton are investors, with price points anything from R2.5 million to R25 million, with two-bedroom units averaging around R5 million or R6 million. They very often are purchased by investors who are looking to find a tenant, and who take a medium to long-term view.

If one looks at the Sandton market, even in difficult times when the market crashed in 2008, investors who bought into luxury buildings at that time still would have found their investment had doubled in value.

NASTASSIA ARENDSE:  Right.

KENT GUSH:  But this year there has been an onslaught of bad news from the downgrades and political uncertainty, and this has made cautious investors, as I said, sit on their hands for now and wait and adopt an attitude of let’s wait and see, let’s see how things go at the end of he year; where are we going with all of this? I don’t think they’ve decided not to purchase, they just simply are putting their decisions off.

NASTASSIA ARENDSE:  In terms of the demand, is it a Sandton thing, or is it also Melrose Arch and Rosebank as well? Is everybody going through the same kind of issues when it comes to property?

KENT GUSH:  I think there has been a slowdown. I think in Rosebank a number of the products that have been marketed or are being sold are smaller units, therefore the ticket price is less than the luxury Sandton market. So obviously there are more buyers at the R2.5 million price point than at the R5-6 million price point. So it stands to reason that they are probably having a slightly easier time than we are in Sandton. I know at Melrose Arch – and I think in that same article it says so – their slower price point is similar to ours, and they have experienced a bit of a slowdown. But again, that will come back.

NASTASSIA ARENDSE:  And what about Cape Town? Any insights there? Are they bucking the trend?

KENT GUSH:  They’ve had a fantastic and a wonderful run. How long will that will continue for? In Sandton I was at a meeting on the 23^rd for the Radisson, just looking out over the Sandton skyline. Sandton is the financial heartbeat of Africa. The fundamentals are there for me. I can understand there is a lot semigration and we don’t have Europeans buy into the Sandton market. But we do have a lot of African buyers from African countries buying, who want to be in the shadow of Sandton City, and that is our market.

But the Europeans do not buy in Gauteng, they buy in Cape Town. So obviously that’s helped drive that market and there’s no doubt that semigration to Cape Town has helped drive that. How long that will continue for remains to be seen. I absolutely believe, as I said in my article, that’s Sandton’s hopelessly undervalued. I find it very difficult to understand how a beautiful building in Sandhurst, one of the premier addresses in South Africa, is selling at R45 000/sq. metre, and the same product with the same finishes in Cape Town is selling for double that.

So that’s exactly why savvy investors, quite a number of people who are buying, believe you won’t see those prices again in Sandton because of the land price, and the cost of construction is going up all the time. Also for a developer who is making thin margins selling at R35-40 000/sq. metre, that won’t continue. And I think the savvy investors are looking at buying now, believing that they’ll get good capital growth.

NASTASSIA ARENDSE:  Are they buying now to hold, or are you buying to rent out to other people?

KENT GUSH:  The days of buying to flick on are gone. In the crazy days when the world was awash with cash, if we look at that period from maybe early 2000 to 2007, you would find a lot of buyers would buy off plan, and would look to exit as they took transfer. Unfortunately [that’s not so] in a market that’s been pretty flat like the one that we’ve experienced over the last two to three years. But the guys who’ve really made money, as I said earlier, the guys who bought into buildings even in 2005/6/7, if you speak to any of those people who were buying what were then luxury two-bedroom units at R2.5 million, those units change hands in excess of R5 million now.

NASTASSIA ARENDSE:  Alright, Kent, we’ll have to leave it there. Thank you so much for your time.

KENT GUSH:  It’s a pleasure.