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Oct 02, 2007:
During upswing, land appreciates faster than buildings
NOW is a good time to invest in vacant office- and industrial-zoned land, as land shortages and low vacancies in existing buildings drive values up, say property experts.
Property economist Erwin Rode, CEO of Rode & Associates, says that during an “upswing phase” in office and industrial property — such as now — land appreciates much faster than developed properties.
In his address to the annual Rode Conference on Property in Johannesburg last week, Rode said the difficulty was the shortage of zoned office and industrial land.
“It’s very good to bank in land, if you can find it ,” he says.
The residential market, on the other hand, “is fully priced and you don’t as a rule buy an asset that is fully priced”.
Rode expects residential property prices to grow at about the consumer price index inflation rate “for the next number of years”.
David Green, MD of commercial and industrial property brokers Pace Property Group, agrees that office- and industrial-zoned land is a good investment.
He says land values are skyrocketing for all types of commercial land .
Green says, for instance, the value of industrial-zoned land has risen 300% in the past 18 months.
Industrial land, which was trading in Midrand and other popular areas at R220/m², is now at R650/m² or higher.
“This applies to zoned retail, commercial and industrial land. All three sectors have seen enormous growth in value.”
Green says investment properties have not increased in value as much as vacant zoned land.
“The reason for the increase in the value of zoned land is due to the low vacancy levels ... (in) existing buildings and also the shortage of supply of land which is ready to be developed.
“It can take up to 18 months or more to rezone land from agricultural or residential to other uses, whilst the demand for zoned land is such that developers are not able to wait that length of time and therefore require land that is already correctly zoned.”
These factors have put upward pressure on land values.
“The increasing rentals ... in all the sectors have also made it possible for developers to pay higher prices for land and still achieve acceptable returns on new developments ,” says Green.
The price of office land differs from area to area, Green says. In Johannesburg, “the highest prices are being achieved in Sandton and Fourways, Sunninghill and Bryanston”.
