November 13, 2003
By Lucille Davie
WHILE demand to purchase inner city buildings in Johannesburg is accelerating, sales of individual sectional title flats are "languishing", according to a recent survey.
The Trafalgar Property & Financial Services October 2003 inner city survey describes sectional title properties as the "Achilles heels of inner city recovery" and says that "banks are still too nervous to readily grant mortgages. When they do, the demand for individual units in sound buildings will be dramatic".
The survey quotes two facts to support this finding. In 1997 306 sectional title units were sold in the CBD, whereas in 2002 just 69 units were sold, a drop of 77 percent. Over the same period the average price per square metre of these units dropped from R542 to R170, a drop of 68,6 percent.
One of the reasons for this, says the survey, is that the situation is exacerbated by "hijacking" of flats, in which tenants default on rent payments and then continue to squat in the flat, making it almost impossible to sell the flat.
The onus for defaulting tenants falls on the owner of the flat, and in cases where the owner can't or won't dislodge the tenant from the flat, the body corporate of the block then has the option of suing the owner, or, as a final resort, sequestrating the owner and becoming a creditor in the sequestrated estate. But once this process is finalised, the new owner still has the old problem: the defaulting tenant.
Trafalgar has produced a plan, at present being used in Pretoria, to deal with the problem.
It involves the local municipality which "appoints a specially chosen administrator for the building who implements a business plan that includes educating owners and training effective body corporate trustee committees".
Trafalgar says that, along with this approach, there is "strong evidence that the attitudes of the majority of inner city tenants is hardening towards non-paying tenants and flat hijacking".
An investigation conducted by the Inner City Housing Upgrade Trust reveals "strong support for evicting defaulting tenants and sectional title owners".
Most inner city residents are law abiding people, keen to have a clean and secure environment, and they consider a minority to be adding to the deterioration of the inner city, says the report.
Trafalgar has indicated that other factors play a role. Inflation is one. Another is the privatisation of gas, water, refuse and similar services, which only add to the tenant's costs.
Exacerbating these problems is the issue of individual geysers and water meters, allowing tenants to be individually billed for their consumption. Tenants are suspicious that landlords are over-charging for these services, or not forwarding their payments to the relevant authorities but rather pocketing the monies.
"In fact, there is a growing culture of non-payment of levies in the inner city and managing agents are almost powerless to collect arrears as trustees are often obstructive."
In contrast to Johannesburg where only specialist investors are buying in the inner city, Pretoria has experienced a more rapid recovery of the CBD, according to the survey. In the past 18 months flat prices have risen from R10 000 to R30 000.
This progress is due to several factors: government workers with access to subsidised home loans; more vigorous by-law enforcement; and the rapid formation of city improvement districts, contributing to more secure and cleaner inner city precincts.
The bottom line for tenants is that they want a "well-maintained, clean building with good security" for which they are willing to pay high rent. And rents certainly have risen over the past 15 years. Inner city rents for a bachelor flat in 1989 averaged R176 a month. In 2002 that figure had jumped to R1 500 a month.
The survey canvassed several bodies for their opinions. Graeme Reid, CEO of the Johannesburg Development Agency, said: "Residential property investment now mainly depends on the public sector becoming more effective. It is bringing together utilities, road repairs, law enforcement etc."
Reid said too that an inner city department had been created to deal with specific residential problems, and "there has been a definite improvement".
But it is not all doom and gloom. Trafalgar reports that if properly managed, residential blocks can be worthwhile investments. A study was conducted of Collette Court in Berea, where rents rose by 36 percent over a three-year period.
While it's acknowledged that the city council plays a role in discouraging investment in the inner city by allowing rates and services arrears to accumulate, banks also contribute to the uncertainty around buying residential property by not managing their own properties adequately, said Reid.
Other factors also play a role: the slow pace of the courts and lawyers, and the huge costs involved in recovering arrears or evicting defaulting tenants.
The survey states: "The cycle of decay is a simple one. Where buildings are not well maintained, vacancies appear and the non-payment of rentals becomes common. It is interesting that tenant demand largely depends on these factors, ie, the condition of the building, and that the position of the building is almost secondary."
The role players feel, though, that the situation is improving.
Neville Schaefer, CEO of Trafalgar, said: "Investor demand is improving but the residential areas will still take two to three years to rejuvenate."
"The broad-brush is that there is an improved perception of the area. There is a sense that something is happening," said Taffy Adler, CEO of the Johannesburg Housing Company.
Reid concurs. "There is definitely a changing perception of the inner city and it is not just in residential property."
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