Reim September 2013 Digimag by Combustion Publishing

CONTENTS September 2013 COVER STORIES

8 Master Investor

12 The Green Evolution

24 Buy-To-Let

reen gProducts 44 Sustainable Buildings

UPFRONT

62 Crowd Funding

36 Building Your Green Home

RESIDENTIAL

COMMERCIAL

5 Investor Talk

22 Get Your Green On

40 Gas-Powered Generation

6 INBOX

24 Does High Risk = High Returns

43 Fast Facts

26 Avoid Gearing Gaffes

44 Sustainable Buildings

28 Breaking With Assumptions

48 Environmental Indemnification

30 How To Build Your Green Home

52 Reading Listed Results

34 Going Green In The Kitchen

54 Invest In Power

It’s green month!

Ask The Property Experts Buying property

8 Master Investor

Spearheading a property revolution

12 The Green Evolution Don’t get left behind!

18 News Alerts

The Good, Bad & Ugly

And think outside the box

The future of energy is here

Or is low risk better?

The benefits behind your green building

Don’t gear beyond your affordabilty

Investing in the future

Greening social housing in South Africa

Look a little closer at the laws

Without paying an arm and a leg

Become fluent in finance jargon

Energy-efficiency offers huge savings

New energy solutions in business

INTERACT WITH US find us on facebook

www.facebook.com/Real Estate Investor Magazine

www.reimag.co.za

find us on twitter

www.twitter.com/Sa_Reimag

find us on youtube

www.youtube.com/reimag

September 2013 SA Real Estate Investor

CONTRIBUTORS

OFFSHORE

PROFESSOR FRANCOIS VIRULY Francois is a property economist with over twenty years’ experience in the analysis of the South African property market. Professor Viruly lectures in Urban Economics, Property Development and Portfolio Management at UCT.

60 Green London

Invest in the future of eco-housing

62 Crowd Funding

The property revolution has started

LEW GEFFEN Lew is undoubtedly one of the doyens in the business. He is considered as one of South Africa’s leading experts in real estate. As chairman of Lew Geffen Sotheby’s International Realty, Lew also holds directorships in other property companies.

EXTRA FEATURES 56 Property Professor

MIKE SMUTS “Author, entrepreneur and full time property investor, Mike Smuts is a recognised London property expert who has helped many South Africans make great returns in the London property market.

Social and economic returns

66 Lessons

Creating your wealth PATRICK FORBES Patrick studied at Rhodes University completing a BSc in 2002 and a LLB in 2004. He is currently completing his LLM in Environmental Law through the University Kwazulu-Natal Durban. Patrick joined Garlicke & Bousfield to serve his articles. SCOTT PICKEN Scott is the CEO of IPS Invest & Wealth Migrate, he is an offshore investment specialist. Starting in 2003, IPS has been helping people invest internationally with confidence for many years.

Publisher - Neale Petersen Editor - Angelique Redmond Designers - James Clark & Amy Little Traffic - Juanita Heilbron Financial Manager - Marisa George Office Assistant - Melissa Petersen Web Administrator - Russell Bennett Sales Manager - Roy Lategan Sales Executives - Andre Evans, Renier Lombard, Alex Masamuna & Marc Oppel

JONATHAN SMITH Jonathan is the director of Courtwell Consulting and has extensive experience in property and consulting including educational programs. Courtwell Consulting provides five key services to the private and public sectors in South Africa. KEN GAFNER Ken is an electrical engineer with experience in farm biogas, cogeneration and gas fired power station projects. International experience includes 6 years in the UK and Germany. He is the Managing Director of Single Destination Engineering.

Tel: 021 674 5026 Fax: 086 627 2400 Email: info@realemedia.co.za Physical: Bizmall, Shop 3, Heritage House, 20 Dreyer Street, Claremont, 7700 Postal: PO Box 858, Howard Place, 7405

MONIQUE TERRAZAS Monique is a journalist and freelance writer, with more than a decade of experience across a range of industries, and was the winner of the 2012 SAPOA Property Feature Journalist of the Year Award.

Advertising: 021 674 5026 Subscriptions: 0861 228 669 / subs@realemedia.co.za Distribution: On The Dot Distribution For distribution inquiries contact Craig Hughes on 021 918 8659 / 073 395 2396 Printing: CREDA Communications

KOOS DU TOIT Is the CEO of P3 Investment group, he is an invaluable source of education and information on investing in property. P3 offers hope and guidance to anyone looking to build a succesful investment portfolio. JOHN ROBERTS Is the CEO of The Just Property Group, he is one of the property industry leaders. The Just Property Group’s vision is to provide focussed property services through specialised franchise outlets, in specific niche areas in the property arena.

Published by REALE MEDIA Neale Petersen (CEO) B. Taylor

Printed by

IAN ANDERSON Ian Anderson (B Com, CFA, CAIA) is Chief Investment Officer at Grindrod Asset Management. He has more than 17 years’ experience and a proven track-record in managing the portfolios of listed property securities.

Distributed by

Also Published by REALE MEDIA JUST PROPERTY MAGAZINE

Mega Trends In Commercial Property Shaping the future of investors

What to look out for

Jason Lee tells you how

Heavenly Tenants

ENSURE YOUR RETURNS

How to find them

In a volatile economy

Rent killing you!

COME OUT ON TOP

How to save www.justpropertygroup.co.za

With Africa investments

FREE

OFFSHORE HANDBOOK

August 2013 R50.00 (Incl. VAT) R43.86 Other Countries

WINNER

SAPOA AWARDS

September 2013 SA Real Estate Investor

www.reimag.co.za

Autumn 2013

Best Printed Property Publication 2013

PROPERTY Spot Checks

GET THE RIGHT FINANCE

Just

ISSUE

www.reimag.co.za MASTER INVESTOR JT FOXX

All rights reserved. No portion of this publication may be reproduced or used in any form without prior written consent and permission from Reale Media. The publisher gives no written guarantees or assurances and makes no representation regarding any goods or services written or advertised within this edition. Prospective investors should always consult their attorneys, advisors or accountants Copyright © Reale Media

www.reimag.co.za

INVESTOR TALK

BY ANGELIQUE REDMOND

It’s Green Month! Climate change is a reality and one that every single person needs to be aware of and, more importantly, do something about. This month we are looking at ways that you can save money while saving the environment. Whether you green your entire house or just start with recycling, there is a part each and every one of us can play, from homeowners to property developers, in building a sustainable future for all. We have come up with every conceivable way you can make an impact, starting right now.

forest development standards.

Don’t forget that the week of 16 -21 September is ‘ Clean up and Recycle Week ’. If you’re not sure where to take your recyclables, log onto w w w. my waste.co.za and f ind the facility nearest to you. We here at REIM are doing our bit and your magazine has been printed on Hi-Q Titan plus paper, manufactured in accordance with the most stringent environmental protection and sustainable

Another thing we are celebrating this month is our 6th birthday! Over the past six years we have grown from strength to strength and we couldn’t have done that without you, our loyal readers, so thank you for the last six years and here’s to many more filled with the latest news and cutting-edge articles in the property investment and wealth creation world. If you want to share your investment story or journey, why not go to our facebook page and leave a message? And if you haven’t already, be sure to go to our website and register for the digital magazine, so no matter where you are in the world you can access and read the magazine. And, of course, nothing is more green than going digital.

TWITTER COMMENT Laura_Phillips@SA_Reimag

I Love your improving section. It has given me some great ideas

FACEBOOK COMMENT Sifiso Pule commented on Real Estate Investor Magazine

Sifiso wrote: " Inspirational! Thank you very much for all you do REIM team!”

Like us on Facebook

http://www.facebook.com/RealEstateInvestorMagazine

Happy Reading! Angelique Redmond EDITOR PUBLISHERS FOREWORD We all know that the South African and global economy are always changing at a rapid rate. September is the start of a new season: Spring, a great time to get yourself focused to take action for the last part of the year. I have attended more than 10 property and wealth events over the last two months to improve my own education and personal economy, from IPD, NAC and Buy Below Market Value to our own Wealth Master Class with Donald Trump Jnr. This is our annual Green Issue and we also look forward to the forthcoming inspirational Green Building Council event in October. Robert Kiyosaki says the type of education needed to make people wealthy is very different from the formal education they got to make them become middle class. Real estate experts are all predicting upticks in business and investors say this is the time to rebound in property. One caveat is that investors will only prosper and achieve financial success if they are prepared to work on their own personal development and get out of their comfort zones. Get dedicated to your education and financial freedom is within your sights. Neale Petesen PUBLISHER

“What is the use of a house if you don’t have a decent planet to put it on?” Henry David Thoreau www.reimag.co.za

September 2013 SA Real Estate Investor

ASK THE EXPERTS Buying Property

JT Foxx JT Foxx Organization www.jtfoxx.com

Jonathan Stewart Asks:

Lending Criteria

Ken Reynolds Nedbank Corporate Property Finance www.nedbank.co.za

Steven Mzimande Asks:

Managing Tenants

Michelle Dickens TPN www.tpn.co.za

Ryan Daniels Asks:

I have read about buying properties below market value and also buying property without using any of your finance in the US quite a lot. In SA I have also heard a few people say that is possible to do the same. My question is how does that work in practice?

I am having difficulty getting finance to purchase an office block with a residential component in the Johannesburg CBD. What is the bank’s criteria in awarding finance to a Pty Ltd that is applying for the finance?

I am a landlord who owns more than 200 properties both located in flats, I refuse to use an estate agent to manage my properties. Is there a cost-effective way to use tenant check validation via a central tenant management system?”

JT Foxx Responds:

Buying properties below market is essential, not only for short-term success in real estate but also long-term sustaibility as a real estate entrepreneur. Too many investors approach real estate like gambling, they buy hoping it will go up. The houses win most times and it’s usually not your house. Buying properties without money doesn’t mean that there is no money involved, it just means it’s not your own money. My whole life people told me, it does not work here, this country is different or the laws are different here. Bottom line good deals don’t come to you, you have to make them good deals. So the answer to your question is, yes it works, and I plan on showing the entire country how to do it, not by teaching but by lots of properties. Here is a little secret, I buy real estate, I never just put in one offer. If you put in one offer you are allowing the person to say yes or no, you want to engage in dialogue. So I usually put in a low all cash offer and another that is more creative. You will be surprised at the multitudes of opportunities you now have and the negations you can take part in. At that point everything is negotiable.

Ken Reynolds Responds:

Lending of money in general and specifically in the property field is about the certainty of future income and its ability to service the debt required, together with the value of security available to secure the debt. In this specific case the future income is only secure for three years on the offices, depending on the quality of the tenant, and the residential income is subject to market conditions over the period. The property valuation will ref lect this as reducing the value of the asset and it will prove difficult to entertain an aggressive level of lending on this property. Funding of property is not an exact science but depends on a mixture of the certainty of future income, adequate capitalisation and the expertise of the borrower to run the asset. The norm in the market for the funding of commercial properties is between 60% and 75% of value, with the balance having to be equity funded. Investing in commercial property is a capitalhungry business in that any portion of the purchase price of a property not covered by debt needs to be equity funded and the numbers are usually large.

Michelle Dickens Responds:

Tenant screening is a fundamental part of property management. A landlord’s property investment can be seriously impacted by a nonpaying tenant, or worse a squatting tenant. TPN Credit Bureau understands that the ability to place quality tenants depends on having a previous record of that tenant’s rental behaviour. For this reason TPN contracts with landlords who may simply have one property, even a cottage which they rent out, all property managers including independent agents, franchises as well as listed property funds. TPN members can access the TPN credit bureau database to search for their prospective tenant’s rental history including how the tenant paid their rent each month of the lease. TPN members also feedback to the database on a monthly basis how their tenant is paying (on time, late, partially or not at all), this feedback is loaded on the tenant’s credit profile and the tenant is advised via SMS how their payments are positively or negatively affecting their credit profile.

Do you have a property question you would like answered by our experts?

If so, post it on ASK THE EXPERTS on www.reimag.co.za or email angie@realemedia.co.za 6

September 2013 SA Real Estate Investor

www.reimag.co.za

MASTER INVESTOR

BY MONIQUE TERRAZAS

Spearheading A Property Revolution... Into a sustainable future

September 2013 SA Real Estate Investor

www.reimag.co.za

rian Wilkinson, CEO of the Green Building Council of South Africa (GBCSA), is leading a revolution in the South African property industry, as increasing numbers of property owners, developers and tenants realise the massive benef its green building delivers to their success. Brian’s education and experience has prepared him particularly well for this role. He graduated with a BCom degree from the University of Cape Town, before completing a Chartered Management Accountant (CMA) qualification and later his MBA, also through UCT. He then joined Old Mutual in 1984 as a Property Investment Analyst, later heading up the department, before moving to Johannesburg to become the National Property Investment Manager, working with Ian Watt, a legend in the property industry. At the time, Old Mutual was increasing its investments in property and Brian gained impressive experience in a variety of large-scale projects, including big inner city developments, industrial park establishment countrywide and land bank investments. Returning to Cape Town, Brian headed up Old Mutual’s Corporate Real Estate department, this time taking on the role of a corporate tenant, which added a new dimension to his property management journey. This, as well as the electricity outages which were prevalent at the time, piqued his interest in reducing operating costs through sustainability practices and green building. In 2006, Brian left Old Mutual and turned his attention to consulting for a wide range of organisations. He was soon invited to join the Ilima Trust, an initiative which aimed to make the skills and experience of the “silver heads” of industry available to government and small businesses through a mentorship programme, in conjunction with Msaziszani, a development funding initiative by Old Mutual, which provided funding to start-up organisations.

The green journey Through what Brian describes as a series of coincidences, he was asked to join the GBCSA two years ago, at a time when the organisation was still relatively small, with five certifications and five staff members. www.reimag.co.za

UPFRONT Research had shown that the GBCSA was high growth trajectory and Brian’s key role was to identify the infrastructure and competencies required to get the GBCSA fit for this growth. Since then, the organisation has grown into a significant player in the property industry, with more than 40 certifications completed, including the first 6-star rating in South Africa, and more than 20 staff members. The next goal Brian set for the GBCSA was to change the marketing strategy from a passive approach to more proactive approach of actively engaging stakeholders in the property industry, taking green building into the market place.

The big picture Brian’s passion for green building is founded on solid understanding and experience of the role green building plays in the big picture of the current global situation. He believes that the green building movement is an intelligent and very practical response to the clear and present threat posed by climate change. He notes that green building is a particularly effective response, firstly, because the built environment accounts about a third of global emissions and, secondly, because the built environment allows a significant impact to be made in very short time periods, by changing the way buildings are operated. These two factors, Brian believes, makes the built environment the single biggest abatement opportunity in global and local efforts to combat climate change. The GBCSA therefore focuses its efforts on two aspects. The first is creating awareness of environmental sustainabilit y in built environment, through maintaining a prominent profile in the media, offering formal education programmes, hosting premier green building events and working closely with the public sector. The second focus area for the GBCSA is its role as a recognised certif ication body, offering organisations, who are committed to sustainability, legitimate and globally recognised certification of their environmental efforts in developing and operating green buildings. The certification engine is the Green Star rating, which has been adapted, customised and localised from the Australian GBC rating tool and covers commercial buildings, specifically Offices, Retail, Multiple Residential buildings, Apartment buildings and Public and Educational buildings.

BRIAN WILKINSON Personal Statistics Age: 54 Qualifications/Experience: B.Com (UCT), CMA (Chartered Management Accountant), MBA (UCT) Achievements: Securing the World Green Building Congress for Cape Town Marital status: Married, with two daughters

Close-up Mentors: His father, who arrived in SA from the UK after the war with nothing and built success through sheer hard work and Martin Buss, who was the GM of the then Old Mutual Properties. Books: Management books by business experts such as Steve Jobs and novels by Tom Clancy and Clive Cussler. The best financial advice you have been given? Successful investment requires a long-term view: don’t expect overnight returns. Green building provides exciting returns over the long term.

“Brian’s passion for green building is founded on solid understanding and experience of the role green building plays in the big picture of the current global situation”

September 2013 SA Real Estate Investor

MASTER INVESTOR Exciting developments The last two years have also seen some exciting new developments, including the launch of the Green Lease Toolkit, and very recently, two new rating tools: one for Interiors, sponsored by Standard Bank, and another for Existing Buildings, sponsored by Nedbank. Both the Green Lease Toolkit and the Interior rating tool creates a new market segment in the green building sector, bringing the tenants into the green building playing field. In line with new tenant demands for greener and more efficient space and the increasingly green approach taken by the design community that manage the fit out process, these tools allow tenants to benefit from sustainability efforts in fit out and during operation of the building. The existing building performance rating tool is another exciting new development for the GBCSA, given the reality that existing buildings comprise the bulk of total building stock. This tool takes sustainability in the built environment into the main stream mass market. As a result, Brian believes that within three years, green rated buildings in South Africa will number in the thousands. Working with the World Green Building Council, the GBCSA has also developed a socio–economic framework for inclusion in its certification, based on the premise that holistic environmental sustainability demands consideration of the social aspects. This socioeconomic rating tool exists alongside the green building rating tool and has been made available to other Green Building Councils around the world.

Future developments The GBCSA is a lso work ing w ith the International Finance Corporation (IFC), a division of the World Bank, on a project that may culminate in a green building operation system for residential property. Brian believes that should this initiative come to fruition, it will take green buildings into the consumer space by providing a “lite” green building system for residential property owners. More exciting news is that the WorldGBC Congress will integrate with the premier 6th annual Green Building Convention, hosted by the GBCSA at the Cape Town International Convention Centre from 16 – 18 October 2013 – 10

September 2013 SA Real Estate Investor

a first for Africa and a significant opportunity for local players in the property industry to network with experts and thought-leaders from 92 green building councils from across the globe, making this the most distinctive sustainable building gathering ever hosted on our continent.

The cost question One of the most often asked questions, which will no doubt be answered at this global gathering of green building experts, focuses on the cost implications of green building. Brian says that stakeholders looking for empirical evidence of the cost benefits of green building will find the economic case for green building in the GBCSA publication Rands and Sense of Green Buildings, available on the GBCSA website. He notes that many owners, managers and developers remain fixated on the so-called “cost premium” of green building. However, Brian believes that while all new technology – including green technology – encompasses what is often termed an “early adopter premium”, the reality is that the green building has matured beyond the experience curve, and the tangible manifestation of this is that the process of certification is becoming more efficient as the quality of submissions improve. As a result of the improved experience and expertise in the sector, as well as the maturation of the technology, the existence of a “cost premium” in green building is debatable. Nevertheless, many still argue that there is a cost premium involved, often considered to be around 2% for a 4-star rating, 5% for a 5-star rating and 7% for a 6-star rating building. These are very speculative figures, given the fact that each project is unique, and must be considered in the context of the long-term cost benefits. Some of these are easy to quantify, for example, rental premiums and lower operating costs, while others, such as future-proofing a building against becoming obsolete and the proven increases in productivity, are more difficult to quantify in monetary terms. But the bottom line is that long-term cost benefits more than justifies any perceived cost premium on a green building.

starting point is to download and apply the GBCSA’s free energy and water benchmarking tool, which will allow them to evaluate how their buildings are performing relative to a statistically relevant South African benchmark, which has been normalised or adjusted for variables such as occupancy, the number of occupants, the type of building and even the number of computers. It provides a measure of the building’s current electricit y usage and water consumption figures, which allows for a better understanding of cu r rent per formance relative to the benchmark. If the building outperforms the benchmark, it delivers a marketing tool that will be indispensible in negotiations with tenants. If the building underperforms the benchmark, it provides intelligence that can inform investment decisions.

BRIAN’S ADVICE FOR PROPERTY INVESTORS 1 Green buildings are the future

– the environment, particularly in terms of operating costs, has never been more conducive to green building practices.

2 Take note of the growing demand

among corporate and residential tenants for green properties that are more cost-effective to operate.

3 Avoid anecdotal evidence that

green building is technical and expensive – get an informed opinion from an experienced professional.

4 Equip yourself high-level

knowledge and information to understand the economic and environmental implications of a green building journey.

5 Under s t and that any “cos t

premium” should be considered in the context of long-term cost benefits and the value of futureproofing your property portfolio.

Get in on the action

So how do property developers, owners and tenants take advantage of the benefits that green building can offer? Brian suggests the best

RESOURCES Green Building Council South Africa

www.reimag.co.za

COVER STORY

The

Green

BY MONIQUE TERRAZAS

Evolution

Everyone’s going green... don’t get left behind!

oing green is no longer a fad for tree-hugging hippies or a fashion statement among companies with large media budgets. It is an absolute imperative for success and survival in a new economic and social milieu, which has irrevocably changed the way we live, work and play - not unlike the advent of electricity or the introduction of computers or the Internet. And if you’re not going green, you’re running a significant risk of being left behind: as an individual, as a family, as a company and as a nation. And in few industries is going green as important as it is in the property industry. 12

September 2013 SA Real Estate Investor

www.reimag.co.za

UPFRONT The recent World Green Building Trends SmartMarket Report published by McGraw-Hill Construction and United Technologies found that 28% of architects, engineers, contractors, building owners and building consultants around the world report that they are focussing their work on sustainable design and construction, by doing at least 60% of their projects green. And continued growth is expected, as 51% of firms report that they expect to be at high levels of green activity in just three years. The most notable part of the results is that this trend is not localised to one part of the world or to developed countries. From 2012 to 2015 the number of firms anticipating that more than 60% of their work will be green will more than triple in South Africa, more than double in Germany, Norway and Brazil, and will grow between 33% and 68% in the US, the UK, Singapore, the United Arab Emirates and Australia.

South Africa in the lead South Africa features strongly in the report, which reveals that green building is rapidly taking hold in the country, with its share of firms that are highly dedicated to green building growing at a faster rate than in any other part of the world. It certainly is great news that South Africa is taking its place among the leaders in green building. Overall, 16% of South African firms report heavy levels of green in 2012, an eightfold increase in just three years. And they expect levels to more than triple in the next three years. In respect of new commercial buildings, 60% if firms report that they have future green plans, while 58% of firms reported plans for retrofitting existing buildings. Notably, South Africa is one of the only countries with a high level of reported green activity in the residential space, with over a third (36%) of firms reporting planned green activity for low-rise residential projects. Their findings are corroborated by those of local property experts. June 2013 proved a bumper month for green building certifications in the country, with a total of six new buildings receiving a Green Star SA rating from the Green Building Council South Africa. “This upsurge further substantiates that the green building movement is rapidly gaining ground in South Africa as developers and progressive businesses increasingly embrace sustainable building practices,” comments Brian Wilkinson, CEO of the Green Building Council South Africa (GBCSA). “These new ratings take the total number of Green Star rated buildings in South Africa to 36, and include some impressive and significant developments.” www.reimag.co.za

Over the past decade, green building has emerged as a growing trend among a vigorous interest group to create high-performance, energyefficient structures that improve tenant and/or owner-occupier comfort and well-being while minimising environmental impacts, says Sean Liebenberg, new business executive at Excellerate Facilities Management. “With support structures in place by organisations such as the South African Property Owners Association (SAPOA) and the GBCSA, both public and private entities are increasingly pursuing green buildings in the institutional, commercial and residential sectors. Landlord and tenant mindsets are changing and progress in achieving greener standards is becoming noticeable,” he says.

The driving factors “Green business is intelligent business,” comments Peter Townshend, co-founder of Know More, a workplace and environmental consultancy. “One particularly interesting stat from The World Green Building Trends SmartMarket Report is that the top trigger driving future green building activity in South Africa is ‘It’s the right thing to do’, followed closely by ‘Lower operating costs’. Despite the tremendous benefits of embarking on a green journey, it seems that South Africans see greening as a moral issue – more so than in the rest of the world.” Top Triggers Driving Future Green Building Activity in South Africa

Source: McGraw-Hill Construction, 2013

South Africa Global Respondents Right Thing to Do 44% 26% Lower Operating Costs 42% 30% Environmental Regulations 34% 23% Healthier Neighbourhoods 26% Client Demand 24% 35% 21% 7%

There can be no doubt that going green is the right thing to do. Our current rate of consumption of the planet’s natural resources is nothing short of gluttony, and at this pace, our generation will exhaust - in just one lifetime much of the resources that have been created over billions of years. The wise Native Americans tried to warn us: “We do not inherit the Earth from our ancestors, we borrow it from our children.” What are we leaving for our children and their children and the generations who will live on this planet 200 years from now? And those who are not willing to do the right thing merely for moral and ethical reasons will be forced by a growing number of ecoconscious consumers and ever-tightening legislation to do so.

Green consumerism (Client demand) A silent revolution known as ‘green consumerism’ is rapidly gaining momentum around the world. The most recent Ogilvyearth Sustainability Survey reveals that a whopping 88.2% of consumers would boycott a company or brand if they believed it was acting irresponsibly in the world. A huge number of people (92.1%) want to know about the actions of businesses and brands towards people and the environment and this will then influence their buying habits. The majority of people (85.4%) feel that not enough attention is given to water conservation and a massive 96% are concerned about whether a product is made from renewable resources. The survey also revealed that nearly 60% of the survey sample say they can’t trust green claims made by brands and businesses and nearly 70% think that ‘green claims’ are just another money spinner. “This just demonstrates how important it is for business to do the right thing; they have to be transparent and honest about their operations and how they do business,” says Melissa Baird, strategist for Ogilvyearth. “If they get it right, they can secure loyal consumers for years to come.”

Legal compliance

11%

Higher ROI

The right thing to do

Even if this radical shift in market demand does not spur companies into green action, the ever-increasing number of green legislative developments should provide some impetus. These include the voluntary adoption of integrated sustainability reporting among JSE-listed companies, as required by the King September 2013 SA Real Estate Investor

COVER STORY III Report on corporate governance; the Expected Business Benefits of Green Carbon Tax legislation; the energy efficiency Building in South Africa measures recently introduced into the National Source: McGraw-Hill Construction, 2013 Building Regulations; the recently approved New Green Building Green Retrofit Integrated Industry Waste Tyre Management Decreased Operating 7% 12% Plan (IIWTMP), funded through a levy on Costs Over One Year tyres, and the release of the South African Decreased Operating 33% 37% government ’s nationa l Climate Change Costs Over Five Years Payback Time for Green 7 5 Response Policy. Investments (Years)

The SANS 10400 part XA standards which form part of the National Building Regulations focus on how buildings are designed and built by providing guiding principles for minimum requirements for items such as hot water supply, energy usage, design assumption (ie the design process followed) orientation or location/ positioning of the building, f loors, external walls, fenestration (the design and placement of windows in a building) and roof assemblies. A further advantage for achieving such compliance is a tax refund in terms of the National Energy Act, 2008 Regulations on the Allowance for Energy Efficiency Savings (as published in Government Gazette number 34596). “The result is that builders, contractors and even architects must change the way in which they plan and construct all new buildings to ensure that the new laws are met,” comments Ori Saban of solar water heating company, AGS Solar. “Statistics identify the support of the new legislation, showing that the use of solar power in both residential and commercial buildings is now climbing swiftly, and has been doing so since the new legislation was passed. The bottom line is that this new legislation has remoulded the way in which properties are built, as architects/designers now need to implement the new standards and requirements to ensure they meet the new legislation.”

These projected reductions in operating expenses are not overly optimistic and will certainly make a substantial difference in a country where operating costs are soaring. In 2009, electricity tariffs increased 22.10 cents per kilowatt hour (c/kWh) to 33.14 c/kWh an increase of 49.95%. Price increases in 2011, 2012 and 2013 were 24.8%, 25.8% and 16% respectively, which means that prices were raised in four years by 173% above the price on

“New green buildings are expected to decrease operating costs by 33% over five years” 31 March 2009, and 147% above the inflation rate. And with the 8% per year increase over the next three years, electricity consumption will continue to be a major and growing cost for companies, especially landlords and property owners.

If there is one thing that grabs corporate attention, it is the opportunity to save on costs. And going green not only saves money now, but also for years into the future.

Water tariffs can also be expected to rise as the water supply in South Africa becomes ever-more critical. Add to this the reality that the petrol price has already breached the R13 a litre mark, and going green in every aspect of a company’s operations becomes a survival strategy.

“An interesting observation made in The World Green Building Trends report is the list of expected business benefits of green building in South Africa,” adds Townshend. “New green buildings are expected to decrease operating costs by 33% over f ive years, while green retrofits are expected to decrease operating costs by 37% over the same period.”

In addition, a new cost factor will soon impact on companies: a carbon tax of R120 per ton of CO2 emitted will be introduced from January 1 2015 and will increase by 10% per annum. Any person or company using a lot of energy will be highly affected by the proposed carbon tax, given the fact that the cost of electricity price could increase by 4.8c per kWh as a result of the carbon

Lower operating costs

September 2013 SA Real Estate Investor

tax, an increase of around 8%. It will also affect the cost of building materials, notably cement, and the cost of every other conceivable product and service.

Employee productivity W h i le ef fec t ively dea l i ng w it h g reen consumerism, regulatory compliance issues and rising operating costs, going green also benefits companies – whether tenants or owner-occupiers – in respect of higher employee productivity and reduced absenteeism. International studies have shown that green buildings can produce a 20% boost in productivity, while people in green buildings have fewer incidents of colds, f lu and asthma as a result of better ventilation systems and environmentally-preferable paint and furniture. A 2004 study of professional women in France identified a 57.1% reduction in sickness absence, a 16.7% reduction in doctor visits and a 34.8% reduction in hospital stays among subjects with natural ventilation in their workplace.

Sustainability Perhaps more impor tant than a l l these benefits for forward-thinking companies is sustainability – ensuring that a company can survive the next decade. Going green is the only way to sustain a business into the future, not only in terms of being able to continue operating in the face of rising electricity, water and fuels costs, but also in terms of managing the ever-increasing risk of supply interruptions. Eskom has called on all South Africans to use electricity sparingly as “the power system is extremely tight”. When households are requested to switch off everything but one light and the TV, just to keep the power on, one wonders if we really understand just how tenuous the power supply in South Africa is? And do we recall the enormous economic costs of rolling blackouts as experienced previously? Our water supply is similarly under massive pressure, while the demand and supply realities in terms of crude oil will ensure petrol prices continue to rise and rise. Companies who do not embrace the green evolution – much like the companies who lagged behind in embracing computers and mobile technologies – will find themselves www.reimag.co.za

UPFRONT increasingly unable to compete with the trailblazers who benefit from massive costsavings and eff iciencies, and the laggards will eventually find themselves trying to play catch-up, or will simply be left behind.

Bottom line: more profitable business All these factors add up to one conclusion: green business is more profitable business. There are many thousands of green case studies and success stories across the globe. To mention just one, close to home, Woolworths has saved more than R100 million since 2004 through their sustainability strategy – referred to as its Good Business Journey – which is globally regarded as one of the most innovative and encompasses an array of energy-saving measures across its stores, offices and distribution centres. The savings have mainly been achieved through employee education and intelligent technology from lighting to refrigerators. And increasingly property owners, landlords and tenants are recognising the massive benefits of green buildings, as detailed in the figure below.

Source: McGraw-Hill Construction, 2013

Lower Operating Costs (eg. Energy Costs, Total Lifecycle Costs) 76% Higher Building Value at Point of Sale 44%

38%

36% Education of Occupants About Sustainability 31% Higer Rental Rates 27% Increased Tenant Productivity 25% Higher Occupancy Rates 25%

The cost-benefit analysis In theory, then, going green - especially in buildings - sounds like the only way to go, but what are the costs involved? www.reimag.co.za

“There has been a great deal of debate around cost,” explains Heidi Franck, COO of One Property Holdings. “Certain methods and products utilised may have high capital costs but will provide long-term savings in electricity and other operating expenses. New technology is generally more costly, but one must weigh these upfront costs against lifetime savings. And of course, the environmental payoffs cannot be quantified from a financial perspective.”

“Woolworths has saved more than R100 million since 2004 through their sustainability strategy” Sean Liebenberg, new business executive at Excellerate Facilities Management adds: “One of the other key factors to be considered when changing a business unit or building from traditional to sustainable is to carry out a costbenefit analysis. The purpose of this is to make sure that the investors weigh the costs of doing business the usual way against the costs of keeping the environment in mind when conducting business. It is imperative to consider the social implications of implementing a sustainability programme into your business and how your organisation will reap the future rewards. Previously, when a person termed an organisation as being sustainable, one would have considered the steady increase in the earnings of that particular organisation, but in more recent times, sustainability of an organisation may refer to a strategy to save costs in order to drive the bottom line, thereby making good business sense. “There is a perception that implementing green methodologies costs more and is therefore not suitable for the average property owner. However, research has shown that the costs versus benefits of green building have a modest initial cost premium, but that long-term benefits far exceed the incremental capital costs. In addition, research has proven that if green methodologies are incorporated during the design phase of a project, it is far more cost effective than implementing green initiatives once the building is developed.”

So how do you go green? Despite some misperceptions, going green is not

about giving up the luxuries we have become so used to and dependent on. It is about enjoying these luxuries in a responsible and sustainable manner, so future generations can enjoy them too. Unfortunately, there is no silver bullet solution that can make your buildings green overnight. Fortunately, legislators, investors and tenants don’t expect a building to be 100% green, nor do they expect sustainability to be achieved overnight. But what is certainly expected is a clear intent to go green, manifested in a clear, practical plan towards ever-greener operations which is implemented with vigour and measured to determine success. Going green – as the phrase implies – is not a destination: it is rather a long-term journey of imbuing every aspect of your building and its operations with a green hue and then, over time and with a practical plan, deepening the shade of green for each activity. It is a never-ending process of continuous, incremental improvement, because while buildings and their occupants are consuming scarce natural resources in any form and/or are producing waste in any form, there remains room for going even greener. It is generally accepted that green companies tend to focus on two overarching goals: 1. Optimising efficiency, and 2. Increasing the use of alternative energy and sustainable technologies. So, we could define a green building as one that is proactively and continuously reducing its impact on the environment through a range of activities that are aimed at optimising efficiency and increasing the use of alternative energy and sustainable technologies. The concept of incremental improvement means that between where your building is now in terms of environmental performance and the vision of a green building operated efficiently and responsibly, there are a range of strategies and activities that could be implemented to bridge the gap step-bystep over time.

Start here... The process starts with measuring your current performance and then setting realistic, practical goals to improve environmental performance incrementally over time. Measuring current performance provides a starting point and a baseline against which to September 2013 SA Real Estate Investor

COVER STORY monitor results. Measuring and reporting provides actual numbers and figures that can produce proof – in monetary terms – that the “green” initiatives are producing results. This not only facilitates buy-in from the financial department, directors and stakeholders, but will also build momentum and keep stakeholders motivated to maintain and improve green initiatives. Furthermore, accurate measuring and reporting will provide indispensible data to keep such a multi-faceted project on track – ensuring that any implementation problems or shortcomings can be identified and rectified. The data collected will also become invaluable in guiding future decisionmaking and capital purchases. From the baseline data, goals can be set across operations to improve performance incrementally. When setting these goals, look for realistic and practical options, taking into account the cost of implementing each option, the potential benefits and how quickly it will deliver results. Also consider potential risks and ways to mitigate them. Your goals should then be broken down into achievable action steps with deadlines, assigned roles and responsibilities, and monitoring and

reporting requirements. Ultimately, the aim is to have comprehensive sustainability reports that have been third-party verified.

Start small You don’t have to invest millions at the outset to start your green journey. Simply look at each aspect of your building and its operations and begin with simple, no cost strategies to green each aspect. This can be as simple as putting up signs asking occupants to turn off the lights when they leave a room, setting double-sided printing as the default on printers, or switching off computer equipment and geysers when locking up. It could entail sourcing greener products – such as environmentally-friendlier paper, paint that carries the ECOKIND™ logo and environmentallyresponsible cleaning supplies. The successes achieved through these simple, no-cost strategies will reduce resistance to rolling out more ambitious undertakings, while the savings will justify – and even fund – more aggressive strategies, such as fitting energyefficient lighting throughout the building or investigating alternative water heating solutions.

Win-win-win situation

In reality, implementing “green” measures aimed at the good of the Planet, often result in cost reductions and higher Profit, while also contributing the social responsibility of the company to the People in the communities in which it operates - the 3Ps that are part of the sustainable tier in the King III report. In fact, they are intricately linked. The more hues of green incorporated into a company’s activities – and the deeper the shade of green of each activity – to lessen its impact on the Planet, the better for the company’s Profit and its social responsibility to the People. Going green is not about taking quantum leaps, such as replacing your entire property portfolio with green buildings, it is rather about neverending, incremental improvement – what the Japanese call Kaizen. Continuous, incremental improvement in reducing your company’s impact on the environment and the overall impact of your operations on society, while achieving measurable reductions in operating costs, is true sustainability. And sustainability means lower risk and greater resilience, which translates to better long-term business performance for your company.

R E S I S TA N C E

VA L

NEWS ALERTS

BY MONIQUE TERRAZAS

In The Property Headlines The Good

The Bad

The Ugly

Buy-to-let boom on the cards

Joburg clearance certificates debacle

Bank of America sued by government

Bolstering prospects for buy-to-let investors, Generation Y - most of whom are still in their 20s – is also rapidly also becoming known as “Generation Rent” in property circles.

The lengthy period it takes to get clearance certificates from the City of Johannesburg to facilitate property sales has become a serious issue. Instances have been reported in which it has taken more than eight months to get a clearance certif icate from the council, significantly delaying the transfers of property in the Deeds Office. In Cape Town, clearance certificates are usually obtained within four to five days. Some conveyancing legal practices have set up separate divisions to deal with the problem, while others are charging a consultant’s fee of around R950.00 to obtain clearance certificates, strongly suggesting to clients to make use of these consultants as it “can take the council a very long time to issue figures if we do not make use of a consultant and this will cause unnecessary delays in the transfer process”.

In August, the US Government sued the Bank of America for defrauding investors in the sale of $850 million in mortgage-backed securities, alleging that the bank deceived investors regarding the riskiness of the mortgage loans backing the securities and intentionally avoided performing adequate due diligence, leading to investor losses of more than $100 million. According to media reports, the mortgages in question were sold as “prime” loans, implying a low likelihood of default and signifying “a safe and conservative investment”, which “justified” the high prices of the investments. However, at least 23% of the mortgages in the securities have defaulted or were delinquent as at June 2013. The government claims that more than 40% of the loans in one of the bonds did not meet Bank of America’s own underwriting standards, with “glaring” problems such as overstated income for the borrowers or fake employment data, which made them “wholly inconsistent” with a prime rating.

According to Berry Everitt, MD of the Chas Everitt International property group, many members of Gen Y are too weighed down by student loans, other debt and a lack of savings to buy a home, while others are simply not ready to settle down, preferring to rent. Either way, the trend is positive for buy-to-let property investors. The average age of first-time buyers in South Africa has shifted from about 27 years of age to 35 over the last 20 years, which means that a significant number of young people are staying in the rental pool for at least eight years longer than they used to. The rental demand has also been boosted since the 2008/09 recession by homeowners who had to sell their properties to relieve financial pressure and have been unable or unwilling to buy again. “And the pressure on supply continues to grow, because there has been so little new housing development in the past f ive years,” adds Everitt. “In short, with interest rates at their lowest in almost 40 years and the demand for rental accommodation set to keep growing especially when interest rates start to move up again – and with annual rental yields rising and property value increases starting to get ahead of inflation again, the current market is offering some outstanding buy-to-let opportunities.”

September 2013 SA Real Estate Investor

There can be little doubt that the issue will be exacerbated by what has been termed a “bizarre” move by the City of Johannesburg, which has objected to the new valuations of almost 63 000 properties on the recently released general valuation roll - after the 3 May 2013 cut-off date for objections. There are now some 88 000 objections – an astounding 11% of the valuation roll – which begs the questions: Did the valuers do a proper job in the first place? What are these objections going to cost the council and, more importantly, the rate payers? And how will 88 000 valuation objections be handled by a council who is already struggling just to issue clearance certificates?

Unsurprisingly, the Bank of America denied it was responsible for the losses, claiming that the “prime” designation was justified, noting that the investments were sold to “sophisticated investors who had ample access to the underlying data” and saying that the loans in question had performed better than similar loans originated and securitised at the time by other financial institutions. The bank blames the losses on the general downturn of the market and economy. In parallel action, the Securities and Exchange Commission also levelled fraud charges against the bank over the same 2008 mortgage security offerings.

www.reimag.co.za

September 2013 SA Real Estate Investor

REI Residential

Township House Price Growth Ahead of Suburbs

Keeping Up Maintenance

Inter-Provincial Repeat Home Buyer Migration Trends

Areas formerly classified as “Black Areas” under Apartheid Era classifications have outperformed the former White “suburbs” in terms of house price growth for much of the period since 2006, playing catch up off a very low price base. In the 2nd quarter of 2013, the FNB Former Black Township House Price Index for Major Metro regions rose by 8.4% year-on-year. This was mildly higher than the 6.3% recorded for the entire market in the six major metros (Ethekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Joburg and Tshwane). Townships markets represent the most affordable part of the residential market, with an estimated average transaction price of R281 953 as at the second quarter, and have shown to be a bit more cyclical than the overall metro residential market.

In recent months there has been a marked increase in the number of people buying into multiple unit developments, gated estates and sectional title schemes – not for their own use but as an investment. While this is a welcome trend, it has to be accepted that it can lead to problems, says Bill Rawson, Chairman of the Rawson Property Group.

According to FNB, household mobility appears to be rising over the long term, with a greater portion of households relocating to more far off destinations, predominantly for work purposes. FNB’s research also confirms the Western Cape’s apparent competitive advantage, given the lowest percentage of repeat buyers leaving the province, as well as by far the strongest net inward migration rate of repeat buyers from other provinces. It is not surprising as the province’s economy is the second largest after Gauteng, and also boasts the second highest growth rate, slightly behind that of Gauteng. Cape Town’s combination of good economic opportunity along with a quality lifestyle appears to be the winning recipe in attracting both wealth and skills to the province in relatively abundant quantities.

Valuable Input

The main problem, he says, is that certain investors, while enjoying the current scenario in which rents are rising fast year-by-year, tend to be very slack about ensuring that their properties – as well as those of their neighbours and communa l g rounds – a re properly maintained. “Today’s buy-to-let investor is inclined to see his investment as being in much the same category as a bond or share purchase. He sees no need to be closely involved with it.”

Bill Rawson, Chairman, Rawson Property

Adrian Goslett, CEO, RE/MAX

“As a rule of thumb, I believe that not less than 5% and up to 10% of the rentals each month should be set aside for maintenance purposes.”

““It was not that long ago that a desirable home in a good location may have sat on the market for months. However, that seems to have seen a turn around with many sellers receiving offers in a much shorter time frame.”

www.reimag.co.za

Samuel Seeff, Chairman, Seeff ‘There is a notable shift in buyer demographics in the more affordable and middle-class suburbs in the main metropolitan areas. In some instances, more than half of all buyers are now from the black middle class demographic group.”

Brian Wilkinson, CEO, GBCSA “We are confident that the green building movement in South Africa will continue this upward trajectory and that we will increasingly see green building practices becoming the norm.”

Gerald Leissner, Chief Executive Officer, Arrowhead Properties “We see the residential market as an important new avenue for growth. And it offers great diversification from commercial property.”

September 2013 SA Real Estate Investor

GETTING STARTED

BYJOHN ROBERTS

Get Your Green On And think outside the box

xponential electricity price hikes and a growing world view on renewable energy are forcing people to rethink their power supplies. This opens possibilities to seek electricity solutions outside the box - when Eskom is asking for price hikes that will more than double electricity costs over the next five years, why continue using them as a supplier? Globally, the shift to green energy, specifically solar energy, is gaining traction. Photovoltaic (PV) solar panels are attractive and relatively easy to install; can be designed for personal preferences and, once the initial costs have been paid off, provide households with free electricity. Globally solar energy is an appealing renewable energy as it is clean, emission and noisefree, sustainable, safe and cost effective. PV technology converts solar energy to electricity and should not be confused with solar-powered geysers. Whereas solar thermals generate hot water, solar cells generate electricity. Rather the environmentally-friendly technology provides long-term solutions to South Africa’s electricity issues. The modules use sunlightgenerated electricity fed into the national grid when not consumed and drawn down for personal consumption at night. Average households consume around 5KWh of electricity annually and the challenge comes in tackling consumers’ hurdles around the upfront costs. Installing sufficient panels to fully operate a household off solar energy costs about R100000, but it also translates into an investment fixed for 40 years. Eskom’s escalating electricity price hikes potentially “pay off” those initial costs via savings to the monthly electricity bill within eight years at current levels and less as the parastatal successfully lobbies for spiralling increases. Solar geysers are equally as effective in offering homeowners savings to their electricity bills. Geysers account for around 40% of the household electricity bill and, while consumers

September 2013 SA Real Estate Investor

are still caught into pay ing the f ixed costs on their utility bills, solar geysers substantially lower the variable costs. The question then facing consumers is can they afford to pay upfront for their electricity consumption and in doing so, both save their pockets in the long - run and contribute towards saving Earth? Less tangible, but no less viable, is the potential that houses and office blocks effectively powered by solar may hold a competitive advantage when that property comes to the market. The fact that the electricity consumption is included in the cost of the home could prove to be that x factor that generates a return on investment substantially higher than the initial cost of the installation - and that is after the owner has benefitted from free electricity once those costs have been recouped via the savings. It is not a far-fetched concept. Properties within gated communities already carry premiums on their selling prices, so the future may well hold the same benefit for solar homes. The reality is that globally buildings are responsible for a third of all carbon emissions and thus represent the lowest hanging fruit in the worldwide fight to reduce those emissions. Studies have presented empirical evidence that high performance - or green buildings be they office or home - can not only be delivered at prices comparable to conventional buildings, but that investments can be recouped through operational cost savings. Consequently, the Green Building Council of South Africa now offers a course demonstrating the financial motivation for

green building techniques. The Economics of Green Building course was developed in response to market trends and industry demands and emphasises the necessity for breaking out of the traditional circle of blame and considering sustainable investment decisions for the short, medium and long - term. In their paper “Why Invest in High-Performance Green Buildings?” Melissa O’Mara and Shan Bates argue that property investors and developers are constantly seeking new strategies to deliver sustainable buildings that attract tenants and buyers, while maximising the green value. Investments in green buildings can produce measurable financial value, such as increased rental rates and asset value, reduced risk of depreciation and higher tenant attraction and retention rates. On the other hand, tenants want buildings that attract and retain the best talent, foster collaboration and innovation and increase employee productivity and well-being. They also need to reduce their operating costs, energy use and environmental impacts - and these are factors that O’Mara and Bates argue assist organisations to meet their corporate social responsibility goals. Sustainability, green approaches and thinking differently are no longer just the buzzwords flung out by new-age thinkers. They are the elements on which the property world will hinge in the years ahead and getting to grips with the costs and implications now may well pay dividends into the future, as it is always the forerunners who make the profits.

RESOURCES

Just Property Group

www.reimag.co.za

CUS T

CE VI

R SE R ME O

PROPERTY GROUP

EXCELLENCE

STRATEGIES

BY KOOS DU TOIT

Does High Risk = High Returns Or is low risk better?

t is a myth that buy-to-let property is a high risk investment. This is because, unlike many other investments, buy-to-let property investment allows investors to manage – if not eliminate – all the major risks involved.

This, however, may concern investors who still believe that high risk equals high return. But this, too, is a myth that has been perpetuated by investment companies and asset managers – and certainly not in the interest of their investors.

High risk doesn’t always equal high returns High risk investment does not guarantee a high return – it only provides a possibility that you could make a lot of money, with far less emphasis on the fact that you might not… and that you actually face a significant risk of losing your money. The reason why high risk investments offer high returns is not that high risk delivers guaranteed high returns, but rather that no one will invest in a high risk investment vehicle – with a significant possibility of losing the money invested – unless a promise of a high return is attached to it – and this promise of a high return is no more than a possibility that the investment could yield a high return.

Low risk, high returns There is one investment – buy-to-let property – that is truly low risk, and yet produces high returns, if done properly, for three simple reasons.

1. Buy-to-let property investment produces an ongoing, passive and inf lation-linked monthly income as rentals increase in line with inf lation each year. After expenses, the rental income goes straight into the investors pocket – there are no fees and hidden charges that can significantly affect investment performance. 2. In addition to this monthly income, buy-to-let property also allows investors to earn capital growth on the value of the property as property prices increase over time. 3. Buy-to-let property further allows investors to apply gearing or leverage to acquire the property asset. To acquire a R500 000 property, you may need no more than a deposit of R50 000, and in some cases, you will need no lump sum investment. This makes a massive difference to the return on investment figures, because you are earning returns without investing much – or even any – of your own money.

Spectacular returns In fact, if the returns on a buy-to-let property investment are correctly calculated, taking into account the monthly income, the capital growth and the effect of gearing, the returns produced by buy-to-let property is nothing short of spectacular.

Year 1 Returns Annual capital growth (R500 000 x 5%) Rental income (R4 000 x 12 = R48 000) – not included as covers bond Total Returns Out-of-pocket investment Deposit Bond repayments (R4 000 x 12 = R48 000) – not included as covered by rental Interest, levies +taxes and other costs not covered by rental income Total Out-of-pocket investment Total return on R66 000 investment Year 2 Returns Annual capital growth (R525 000 x 5%) Rental income (R4 320 x 12 = R51 840) – not included as covers bond Total Returns Out-of-pocket investment Bond repayments (R4 000 x 12 = R48 000) – not included as covered by rental Interest, levies +taxes and other costs not covered by rental income Total Out-of-pocket investment Total return on R16 850 invested

September 2013 SA Real Estate Investor

= R25 000 = R25 000 = R50 000 = R16 000 = R66 000 = 37.8%

= R26 250 = R26 250 = R16 850= R16 850 = 155.7%

If one takes a R500 000 property as an example, requiring a R50 000 deposit (the actual out-ofpocket investment made) and one assumes a R4 000 per month rental income, 10% interest rate, 5% capital growth and 8% inflation of costs and annual rental, the returns achievable are detailed in the textbox below. And that is a high return on a low risk investment! Of course, next year and each year thereafter, these returns on investment will grow, because capital growth is compounded each year and, as the rental increases every year, the out-of-pocket investment per year continues to diminish. After a few years, the rental income exceeds the bond repayments and the other costs, which then adds rental income to the capital growth in the returns section, and eliminates the out-of-pocket investment, and the result is truly spectacular returns on investment.

Infinite returns The longer an investor keeps a property, the higher the return on investment. In fact, if the property is acquired in the right trust structure, so that it continues to produce these returns for generations beyond the investor’s lifetime, a buy-to-let property can produce infinite – or immeasurable - returns.

RESOURCES P3 Investment Group

www.reimag.co.za

FINANCE

BY KOOS DU TOIT

Avoid Gearing Gaffes Don’t gear beyond your affordability

interest rate (the long-term average) before buying a property.

Gearing beyond value

Negative gearing

any investors, realising the power of gearing (borrowing money to invest in an asset) and the spectacular returns that it delivers, step into a common, but entirely avoidable, pitfall: gearing beyond their affordability or beyond the security offered by the asset.

What is gearing? Gearing, or leveraging, is also referred to as using “Other People’s Money” (OPM) in wealth creation circles. Essentially, it simply means borrowing money to invest in an asset, such as using a mortgage loan to acquire a buy-to-let property. If you are acquiring a property for R500 000, and obtain a mortgage bond for R500 000, that is 100% gearing of the investment. Recently, it is far more likely that the mortgage lenders will require a deposit. If a 10% deposit is required, the result is a 90% gearing of the investment, while a 20% deposit requirement will result in 80% gearing. While gearing is a powerful force in creating wealth, exponentially increasing the returns on investment, responsible gearing is absolutely crucial to property investment success. Gearing beyond your affordability can result in serious cash flow problems, while gearing beyond the security offered by the value of the property can be a shortcut to disaster.

September 2013 SA Real Estate Investor

Negative gearing refers to the very common situation in which an investor acquire a buy-tolet property using gearing, ie a mortgage loan, but the income produced by the property (in the form of rental income) is less than the total monthly expenses (bond repayments, rates and taxes, management fees, etc) which means that the investor must fund the shortfall between the rental income and the total expenses from his/her own pocket each month. Negative gearing is, in the case of buy-to-let property, a temporary situation, because the rental income increases year after year, while the bond repayments will remain similar, barring interest rate fluctuations. As a result, the shortfall amount decreases year after year until the property investment reaches break-even point, at which time all the property expenses are covered by the rental income. Then, as the rental continues to increase year after year, the property asset begins to produce a growing monthly profit. Negative gearing becomes a major risk if the investor did not carefully analyse his/her cash flow situation to ensure that the shortfall amount can be carried comfortably, even in the event of interest rate increases, which could significantly increase the monthly shortfall amount. This risk is magnified when an investor has acquired multiple investment properties with negative gearing, and even a single interest rate hike renders the increased shortfall amounts on several properties unaffordable. Responsible gearing requires a thorough cash flow analysis and stringent cash flow management, and smart property investors build in a buffer by calculating their cash flow projections on a 12%

While it is far less common since the credit crunch, a few years ago it was possible to gear a property investment 108% and even 118%. This meant that the investor could borrow 108% or 118% of the market value of the property asset, and often this was allowed to ensure the investor could not only pay the purchase price, but also pay the transfer duties and other costs associated with the property purchase. Many investors burnt their fingers when interest rates rose and property price growth stagnated, and these investors found that they could no longer afford the higher bond repayments and could not sell the property at a price that would cover the outstanding bond amount. Similarly, many investors took out second mortgages on a property – cashing in on the equity created as the value of the property increased (at as much as 25% per year at the height of the property boom) and their outstanding bond amounts remained static. However, as property prices corrected after the heady boom days and interest rates skyrocketed, many investors found themselves similarly unable to afford the bond repayments and unable to sell the property for an amount sufficient to cover the outstanding mortgage loan.

Smart gearing Gearing is a wealth creation strategy used by the world’s wealthiest individuals and institutional investors. It is without a doubt one of the most powerful strategies investors can use to acquire income-generating assets without access to significant capital and it exponentially increases the return on investment. However, gearing must be applied with care, including careful cash flow analysis – incorporating a generous buffer to absorb interest rate increases as well as unexpected expenses – and common sense to ensure the gearing does not exceed the security offered by the value of the asset acquired.

RESOURCES

P3 Investment Group

www.reimag.co.za

KAPSTADT INTERNATIONAL PROPERTIES

Elisabeth and her daughter Lisa

ADVERTORIAL

Kapstadt’s homely office at 11a De Lorentz Street, Gardens

house home heart

apstadt International Properties is a boutique real-estate company that specializes in property sales and rentals in the City Bowl of Cape Town – one of the oldest and most sought after residential areas of South Africa. Founded by Elisabeth Kretschmer in 1991, as a small family business, the company has grown into one of the most successful real estate companies in the City Bowl.

The Girls at Kapstadt life and work ethics are best describe in a this meaningful quote by James Mitchner: “The master in the Art of Living… makes little distinction between his work and play, his labour and his leisure, his mind and his body, his information and recreation, his love and religion. He hardly knows which is which. He simply pursues his vision of excellence at whatever he does, leaving others to decide if he is working or playing. To him he is doing both”. Kapstadt International Properties is renowned for always having the best properties and for the caring and supportive manner in which we work with our clients. We enjoy a significant share of the property market in the City Bowl – all thanks to the generous support of our local, national and international network of clients. We look forward to hearing from you and be of assistance in whatever property needs you may have. Yours sincerely

Elisabeth Kretschmer 11a De Lorentz Street Gardens Cape Town +27 21 424 2211 +27 83 252 4562 Elisabeth@kapstadtinternational.co.za

www.kapstadtinternational.co.za

house home heart +27 21 424 2211

STRATEGIES

BY MALCOLM MCCARTHY

Breaking with Assumptions Greening Social Housing in South Africa

eople involved in Social Housing in South Africa are asking many tough questions about the meaning of greening of the sector. The reconciling of cost and impact is very important given the tight financial margins in the sector. While there is a body of knowledge emerging around commercial properties this is far less so in the medium to higher density residential rental market. So now key players in the Social Housing sector are starting interventions to better understand both what should and can be done about greening the social housing sector. The intent of Social Housing is to provide good quality rental housing affordable to low and moderate-income households in well-located parts of our cities. The housing stock is developed and managed by strong entrepreneurial non-profit Social Housing Institutions

(SHIs) using a capital subsidy from government. Many of the 30 000 social housing units developed in South Africa are in medium density projects occupied by households with monthly incomes between R2000 and R7500. Maintaining affordable rentals, within the tight constraints of the cost of provision and management and the levels of government subsidy, is increasingly a challenge even to the most entrepreneurial of Social Housing Institutions. This challenge is compounded by the rising utility charges, specifically electricity. These are forcing more tenants to leave this formal housing option and return to backyards and other less formal housing provision. Tenants say that it is not the quality of the accommodation, nor the management service, nor even the rentals, but the rapid increase in utility costs that force them into an unwanted choice.

This reality has given impetus to thought and action that is now incorporated in the slogan the ‘Greening of Social Housing’. The slogan is easy, the reality of delivering on it more complicated. As organisations like the National Association of Housing Associations (NASHO) starts to untangle the challenges involved, the dimensions become clearer. The glib explanations that greening reduces costs; that savings from greening can help cover the cost of the capital investment; that green education automatically changes behaviour are challenged by the reality. The initial and ad hoc attempts to undertake more proactive greening of the social housing units and buildings has to date concentrated on the substitution of electrical geysers by solar heated water or heat pumps. The limited monitoring of the impact of these has raised problems regarding the increased capital costs that accrue to the project development and the benefits accruing to the tenant. So while on the one hand it achieves greater affordability for tenants, on the other hand the Social Housing institution is not receiving the savings to repay the capital outlay. At the same time the government’s capital subsidy stays the same and so there is no financial incentive to pursue the capital aspects of greening. Then, too, the installation of heat pumps - while reducing the unit costs of hot water - is not necessarily producing savings but rather increased consumption of water. It is clear that beyond the ‘greening’ platitudes, the sector needs greater understanding of the f inancial, economic and social bottom lines to its greening efforts. This understanding should then help frame the necessary p ol ic y, r e g u l a t ion s , f i n a n c i a l mechanisms, partnerships and action programmes to achieve well-defined and realistic ‘greening’ objectives. So how does the sector follow that route? In November 2012 NASHO, with support from Agence Francaise

September 2013 SA Real Estate Investor

www.reimag.co.za

RESIDENTIAL Developpement (AFD), brought together the social housing and the green networks in a workshop that could define the research questions and outline the possible mechanisms to make ‘greening’ of the sector more successful. The workshop identified a number of issues including the tension between capital cost and returns; the impact of energy cost savings on affordabilit y of targeted tenants; the understanding of what capital products have the best effect within the tight frame of financing; lack of established financing mechanisms; and forms and effectiveness of tenant engagement in understanding consumption issues but also in income generating green activities. In pa ra l lel to t he work shop was t he development of the ‘Green Guide for Social Housing institutions’. It recognises that the organisational base of the Social Housing Institutions provides the best point to respond to the challenges. The Guide notes the lack of properly researched and understood dynamics of ‘greening’ particularly in the residential sector and more so in the residential space occupied by social housing. In focusing the thinking of Social Housing institutions it posses the question: “SHIs need to be clear on what they want out of greening. Is the aim simply to comply with regulations at the lowest possible cost, is it to replace a few energy inefficient fittings in the hope of bringing down the electricity bill, or is it to go all the way in weaning ourselves from grid dependency and become totally self sufficient in meeting our energy needs? Is it only about energy?” It uses a non-prescriptive approach in considering a full spectrum of possibilities that go far beyond merely ‘energy’. Building around the sustainability of the Social Housing Institutions, and the stock they manage, it knocks the capital options against the reality of what is affordable within the total building lifecycle. It highlights the centrality of the SHI in the defining and driving of viable greening approaches and the essential part that tenants have to play in making the savings and making the green innovations work. It does not neglect the engagement of these tenants in the income and livelihood activities around recycling and food production that can also improve affordability. In doing so, the www.reimag.co.za

Guide is reflecting the growing importance of the SHIs’ community development initiatives, like that of the Johannesburg Housing Company linked community development arm ’Makhulong A Matala’ which ‘…runs interesting programmes involving residents in food gardening and waste management in the Johannesburg inner City’. A key theme that threads through the Guide is how little we know about the real dynamics and impact ‘greening’ can have in the sector. Through recent networking between the social housing and the greening sectors a project has emerged intended to give more practical answers on these dynamics and impacts. The ‘Green Social Housing Building Project’ is a joint initiative of NASHO and the WWF – SA and financed by the Social Housing Regulatory Authority (SHRA) and the Nedbank Green Trust. Its intent is to help fill the information gaps and use this to inform the ‘greening’ policy for social housing and highlight the mechanisms that can ensure it happens. The two year project involves the development of two Green SH buildings, one new-build in Johannesburg and the other a retrofit in Cape Town under the management of two well-established SHIs, Madulammoho Housing Association and Communicare. Each will manage their building alongside that of stock not benefiting from green investment. The project will track, monitor and evaluate the impact of the green investment and initiatives. This will concentrate on the range of capital products and their impact on value for cost of investment; the financing needs to achieve affordability; and the involvement of tenants and the broader community. Spanning these themes is the better understanding of the actual consumption and cost savings as well as the household livelihood opportunities in money and kind for tenants through the various interventions. All this information is of little value if it is not fed back into the policies and the implementing frameworks of the sector. More than that, the initiatives must ensure that low and moderateincome households benefit from the innovations and therefore can stay to enjoy the fruits of the investment. There is still a long way to go but the untangling has started.

RESOURCES NASHO

SMART MOVES

BY LEW GEFFEN

How To Build Your Green Home

Without paying an arm and a leg

omeowners affected by dramatic hikes in electricity costs over the past five years are increasingly drawn to homes built according to green building practices, says Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty. Eskom says that in real terms, electricity prices have risen by 78% between 2008 and 2011. In February this year South Africa’s energy regulator granted Eskom a further average 8% annual increase in electricity tariffs. As larger numbers of younger, eco-savvy and cost-conscious first-time buyers come onto the market, realtors are seeing a steady increase in interest in homes with energy-saving fixtures. This interest in “green” homes is also driven by increasing public awareness of green building practices. Since the new building standards regulations were put in place in 2011, developers and owners of all residential, public, commercial and retail buildings have been required to invest in energy-eff icient technology for the provision of hot water. According to the Green Building Council of South Africa, six green building 30

September 2013 SA Real Estate Investor

certifications were awarded to new commercial developments in June 2013, bringing the total number of Green Star-rated buildings in South Africa to 37. In order for business premises to be awarded green stars, the various categories of commercial buildings have to adhere to strict guidelines extending beyond the heating of water. In terms of residential property, multi-unit developments like apartment blocks built after 2011 are rated using a points system. This is based on the impact their development has on the ecology of the surrounding area and on their proximity to mass public transport, among other things, in addition to their efforts to reduce hot water consumption by using efficient fittings and to lessen the greenhouse gas emissions of the water heating system they use. The general SANS 10400-XA Energy Usage requirement that applies to all buildings is that a minimum of 50% of their hot water heating requirements should rely on a source other than electricity – such as solar heating and heat pumps. Approx imately 39% of South A frica’s domestic electricity usage goes to heating

water. Fitting a solar-powered geyser is one of the most popular cost-saving greening measures taken by owners of residential property, and because Eskom offers a rebate on solar-powered geysers, it’s also a very attractive option for greening a home. Accord ing to Eskom-accred ited sola r heating specialist Mike Bekker, if a home’s monthly electricity payment amounts to R2 000, a solar-powered geyser could save a home as much as R640 on power bills a month. Taking into account Eskom’s rebate, which is in the region of R4 000 on a R15 000 geyser that can supply hot water to a family of two adults and two children, most geysers pay for themselves in three to four years. As such, a solar-powered geyser is probably your best green investment to make a home more attractive to potential buyers or tenants. There are, however, other ways to add value to a property through the reduction of energy bills. And if you’re handy at DIY, installing them yourself is simple. Insu lat ion is one e xa mple. A t y pica l uninsulated home loses up to 35% of its energy through the ceiling, says insulation specialist Ian Peddie. Heaters, which add hundreds of www.reimag.co.za

Collection Eternity : Low Solar Absorption Powder Coatings Interpon D2525 ECO powder coating technology for Green Building AkzoNobel has always been at the cutting edge, developing products that improve sustainability and diminish environmental impact. In response to the problem of urban heat island and global warming, AkzoNobel is proud to present the Eternity Collection which uses Interpon D2525 ECO Technology. This unique range of powders reflect the solar infra-red radiation, preventing transmission and convection of heat. This means: •

Less heat transferred through window frames, reducing the need for cooling

•

Less heat radiated into the atmosphere, reducing heat island effect

Interpon D2525 ECO powders achieve this by: •

Innovative coating pigments that result in lower surface temperatures, even darker color

•

Unlike traditional coatings, reflecting a large part of the invisible near infra-red radiation (NIR)

Eternity the Essential Collection for Green Building We believe that Collection Eternity will become the first choice for architects, not only helping to reduce energy bills but also providing the following benefits: •

Building life cost efficiency

•

Exceptional weathering durability. Part of the D2000 range, 21 year proven track record.

•

A guarantee of up to 25 years

•

Exceptional heat reflective performance

•

Modern color range

•

Qualicoat Class 2; AAMA 2604 compliance

•

Contribution to “green building” certification

•

SMaRT accredited products

•

Project Guarantee available through Interpon Approved Applicators

Interpon D2525 ECO Low Solar Absorption Powders reflect up to 45% of the total incident radiation energy from the sun.

For more information on Eternity - The Essential Collection for Green Building speak to your AkzoNobel Powder Coatings representative.

Tel: Email: Website: And find out more at:

011 861 0500 Architectural.rsa@akzonobel.com www.interpon.co.za www.interponbuildings.com

SMART MOVES rands a month to energy bills, are usually used to replace this lost heat in the winter. Eskom says that insulating a ceiling using blanket insulation can make a home up to 5°C warmer in winter and 10°C cooler in summer, dramatically cutting the cost of heating and cooling. Blanket insulation, like a solarpowered geyser, will also pay for itself over time. Depending on the size of a home, at a cost of around R60m2, including installation, it would probably take insulation in the region of two years to pay for itself. After that, homeowners or tenants will save thousands of rands in heating and cooling. Replacing traditional incandescent light bulbs with energy-saving light bulbs can also lead to great savings over time. The most common energy-saving bulbs are compact f luorescent lamps (CFLs), ha logen bulbs and light emitting diode lights (LEDs). LEDs are the most energy-efficient and most durable option, using 90% less energy than CFLs and lasting up to 20 years. They are, however, also the most expensive option: a standard LED candle bulb costs in the region of R150. Compact fluorescent light bulbs (CFLs) are up to 75% more effective than incandescent bulbs and last 8-10 times longer. Replacing incandescent bulbs with fluorescent bulbs in an area where lighting is required for long periods of time can save R152 a year, according to Eskom’s calculations. You can reduce power bills by reducing hot water usage, too. The American Environmental Protection Agency (EPA) estimates that letting a hot water tap run for five minutes uses as much energy as it takes to light a 60-watt lightbulb for 14 hours. Showering and bathing use the most hot water in the average home, so the bathroom is the best place to start when it comes to reducing the energy you expend on heating water. A low-f low showerhead is an inexpensive water saver that is easy to install. The amount of water used is reduced either through aeration or by reducing the size of the individual streams of water, meaning less water has to be heated. Fitting a low-f low showerhead can save in the region of R110 a year. To do so you need to unscrew the old showerhead, thread a new 32

September 2013 SA Real Estate Investor

rubber washer onto the shower head mount, and screw in the new lowflow shower head. L ow-f low show erhe a d s a re a v a i l a bl e at mo s t b at h r o om equipment and DIY shops and cost bet ween R100 and R800, depending on their features and the materials they’re made from. Another major source of domestic water use is toilet flushing. While this doesn’t contribute to your energy bill, it does contribute to your water bill – and your carbon footprint. Older toilet cisterns hold 9-12 litres of water, while modern toilet cisterns hold about six litres, meaning you stand to save more water if you have an older toilet. Converting your toilet to a dualflush (long and short flush options) or multi-flush (flushes as long as you hold the handle down) can result in savings of up to 20% on your water bill, according to sectional title expert Rob Paddock. Installing a dual f lush system costs in the region of R1 500, while converting your toilet to a multif lush system is quite simple and inexpensive as an existing toilet can be retrofitted at a cost of between R100 and R450. A very inexpensive alternative is to place a bottle or bag that displaces water in your cistern. You will save the amount of water the bottle or bag displaces. These seemingly small amounts add up over time and, combined with savings from solar-powered water heating and ceiling insulation, can add signif icant value to an investment property, p ay i n g of f h a nd s ome ly b ot h in cost savings and a dramatic increase in perceived value.

RESOURCES Sotheby’s Realty

www.reimag.co.za

IMPROVING

BY ANTONELLA DESI

Going Green In The Kitchen Energy-efficiency offers huge savings

he environmentally friendly kitchen begins with eating green, but it certainly doesn’t end there. Energy- and waterefficient appliances are not only good for the pocket, but they are also a good choice for the planet. Liam Gawne from Miele outlines what you should look for when selecting green appliances for your home.

Changing to energy-efficient appliances is the environmentally responsible thing to do, and it will save you money to boot. Says Liam Gawne from leading appliance manufacturer, Miele: “Let’s face it – if you are going to waste 34

September 2013 SA Real Estate Investor

money, the last thing you want to waste it on is your electricity bill! It has been estimated that appliances can use up to 20% of your total electricity bill – so changing to energyeff icient appliances can save you quite a

substantial amount over the long term.” However, with all the appliance manufacturers jumping on the “green” bandwagon and touting their eco-friendly credentials, it is not always www.reimag.co.za

RESIDENTIAL easy to know which ones are legit. Gawne offers the following tips on what to look for.

Understanding energy-efficient ratings South Africa doesn’t have its own energy label, so your best bet would be to look out for the European Union (EU) energy label. This label is found on a selection of white goods and other products, and they are designed to help consumers understand how energy efficient an appliance is. Says Gawne: “The EU energy- efficiency label clearly displays the energy-efficiency of the appliance and rates it in terms of a set of energy-efficiency classes – from A to G, with A being the most energy efficient, and G the least efficient. The labels also provide other handy information that consumers can use to make comparisons between various makes and models.” He explains that in an attempt to keep up with advances in energy efficiency, A+, A++ and A+++ grades have been introduced for various products.

Consider the carbon footprint A truly green appliance however, is not just about its energy-efficiency ratings – you also need to consider the sustainable practices of the manufacturer, as well as the overall carbon footprint of the appliance in question.

Energy-efficient refrigerators “If there is one appliance that you would like to upgrade to a more energy-efficient model, then the fridge should be the first port of call. Since refrigerators run 24 hours a day, seven days a week, they tend to use up a lot of energy – in fact, it is estimated that they account for around 10% of our homes’ total energy use,” explains Gawne. Of course, he says that when selecting a fridge you should look at its energy efficiency label first: “If it is an energy efficient refrigerator that you are after – the fridge you choose should boast a minimum of an A energy rating.”

Energy-efficient hobs The hob is the only kitchen appliance that offers a fuel option – electricity or gas. Both options have their pros and cons: • Standard electrical hobs are much less energy efficient than gas hobs – they take some time to heat up and cool down, and a lot of the heat generated is not transferred to the food at all. However, if this is all you can afford, www.reimag.co.za

then be sure to opt for the hobs with a ceramic surface, as they do a better job of transferring the heat to your food. • Gas hobs are considerably more energy eff icient – they boast a much better heattransfer ration, and the heat generation is instantaneous. Gas hobs are also considerably less expensive to run when compared to electrical hobs. However, if you opt for a gas hob, it is imperative that you choose an efficient extractor, which will be needed to remove the combustive by-products that the gas will introduce into your home. • Induction hobs are the hobs of the future – if green is what you are after, then induction is the answer. In an induction hob, heat is transferred directly to the pan through high-tech magnetic fields, leading to very little heat wastage. Heat is generated incredibly quickly, and it is quick and easy to adjust. Also, since the heat needs a metallic surface for conduction, when the pot is removed, then the surface immediately becomes cool to the touch – making it safer as well. The only drawback to induction hobs is the fact that they are comparatively new to the market, and therefore only high-end models are available. They also require the use of specific cookware made from stainless steel, cast iron or enamelled iron – so you will most probably require a whole new set of pots and pans as well.

Energy-efficient ovens The energy efficiency of an oven is largely dictated by its size, so it is wise to choose a smaller unit that will meet your needs. If you have the occasional need for larger oven capacity – it is a far better solution to opt for two smaller ovens, rather than one large oven. In this way, you will save electricity by using the small oven most often, and you can use both small ovens when you require larger oven capacity. When making your oven selection, be sure to choose a convection oven, in which a fan continuously circulates the heated air around the food. In this way, the temperature and cooking times are reduced, and in so doing, so is the amount of energy that is required. Also, look for ovens with a self-cleaning feature, as these models are better insulated, which means that they are more efficient at maintaining oven temperatures.

calculates the energy efficiency of a dishwasher according to the number of place settings it can hold. Miele’s Edition 3D Eco model boasts an incredible A+++ energy rating, and an impressive water consumption of only seven litres per cycle. There are a number of other features present in many modern dishwashers that further add to the energy efficiency of the model in question. Quick-rinse cycles are also useful, especially if you are on metered water use.

Energy-efficient washing machines Energy-efficient washing machines use the least amount of electricity possible, and they are able to considerably cut water consumption as well. Although energy efficient models may cost a little more from the outset – their energy efficiency means that they pay themselves off a number of times during their life cycle. He notes that it is also important that a machine boasts an eco-programme for lightly soiled laundry: “Colder washes mean less electricity is used – for example a 20°C wash is 75% more energy efficient than a 60°C wash. Another way to save is to use green products in your home. But what makes a green product? Truly sustainable products are those that not only do not damage, but also positively support the health of people and nature on which all life depends. But how does one use this lofty ideal in deciding how to determine the best green product to use? We can begin by looking at individual characteristics of what makes a product green. A major factor affecting the sustainability of products is whether they use renewable or non-renewable resources and whether they promote the cyclic use of those resources ie by using recycled materials in them and being completely recyclable themselves either within natural cycles such as composting or within ‘technical ’ cycles such as reuse, remanufacturing or recycling Going green is a new way of living which will save you money on the long run and as trite as the saying is, save the planet as well. With just a few small changes in your kitchen and home you can make a big difference to your bottom line and the environment, so why not start today?

RESOURCES

Energy-efficient dishwashers For d ishwashers, t he EU energ y label

MIELE Ecospecifier

September 2013 SA Real Estate Investor

green

IMPROVING

Products

green finishing touch

Heated towel rails have become an essential addition to any modern bathroom. They offer a number of ecofriendly benefits, and really complete the bathroom space as a luxurious in-home retreat.

Less

Smart

showers

Hansgrohe showers have been using EcoSmart technology for a long while, and with every new shower brought into the market, Hansgrohe continues to factor in the precious resource that water is. With AirPower technology, luxurious air molecules are injected into the water, giving it volume, but using up to 50% less water than conventional showers whilst maintaining the feeling of being under a rain shower. The latest shower range, Raindance Select, boasts EcoSmart technology and the new click system by using a button to change between various spray modes. EcoSmart showers are limited to 9 liters per minute. Thermostatic mixers are also EcoSmart in their own right. There is a temperature limit of 40 degrees, which means use of less energy used by accidental heating. Also, by setting the temperature of water, this means less time and water spent finding the best temperature for your shower.

September 2013 SA Real Estate Investor

BY ANTONELLA DESI

Says Craig Taylor from Bathroom Butler: “Even though many believe that a heated towel rail isn’t an essential bathroom installation, if you consider their many practical benefits, as well as the fact that they cost marginally more than a plain towel rail, whether or not to include one into your bathroom is really a no brainer. They really provide an easy and inexpensive means of adding the finishing touch and that extra bit of luxury to any bathroom space.”

water per flush

In the 1980s, Duravit had already reduced the amount of water consumed by its toilets to six litres as opposed to the nine or more litres that were standard at the time. Thanks to ongoing research and development, Duravit is today able to offer toilets that flush hygienically using just 4.5 litres or even less water. With DualFlush technology, a household of four can save about 17,000 litres of water per year. Pressing the economy button flushes with just half the water volume, whereas pressing the large button uses the full water volume.

Paints that

don’t peel walls

Eco-friendly paints are simply non-toxic paints that do not contain any chemical and are created from completely natural ingredients. That noxious smell after painting comes from volatile organic compounds, or VOCs, which the paint can continue to emit for months. Some of these chemicals, like formaldehyde and benzene, have been linked to respiratory problems and even cancer, and others damage the ozone layer. Low-VOC paint types include: Latex, acrylic and milk paint. The labels of paint containers can be checked for the following information: To be considered Low-VOC, the paint should consist of <50 grams per litre (g/l) of VOC. To be considered Zero-VOC, the paint should consist of <5 g/l of VOC. Solid content usually ranges from 25-45%, higher solid percentages ensures less VOCs.

Green wood is good

In an affirmative step towards meeting the needs of more discerning purchasers of treated wood, Lonza Wood Protection has received the Ecospecifier Global endorsement for two of its products, namely Tanalised™ E and Vacsol™ Azure preservative treated wood. This sets the foundation for Lonza to meet the noticeable shift towards an emerging awareness by industry professionals and the end–user for alternative contemporary products that bear the environmental Green Star rating standards. “Right now the end-user is looking for treated wood solutions that will assist in good green design practice and meet growing public and private demand. As an industry we need to encourage professionals to use more timber, which reduces the carbon footprint of buildings, increases thermal efficiency, offers great aesthetics and structural strength and is sustainable and renewable,” said Gerard Busse, Marketing Manager, Lonza Wood Protection.

www.reimag.co.za

RESIDENTIAL Aluminium, keeping you

warm

Aluminium is the most recyclable metal available today. Approximately 75% of all the aluminium ever produced is still in productive use, having gone through countless loops of its lifecycle. The recycling process of this remarkable resource requires less energy than when using virgin material. Unlike other materials, aluminium does not rust or degrade and through its lifecycle does not need to be constantly maintained to ensure its durability. Wispeco Aluminium aspires to “Go Green” as it takes up its responsibility to set an example as leading aluminium extruder in South Africa. Wispeco has designed and developed a range of thermally efficient windows and doors, suitable for single and double-glazing. As a result of its thermally efficient properties, the product keeps warmth in during winter and coolness in during summer, reducing the use of air conditioning and heating systems – and thus saving energy.

LED, it’s all in the

lighting

Cree® is leading the global LED lighting revolution and is making energy-wasting traditional lighting technologies obsolete through the use of energy-efficient, mercury-free LED lighting. Cree®, a US$1.5 billion company, is the market-leading innovator of lighting-class LEDs and LED light fixtures. Cree’s lighting product families include indoor and outdoor LED fixtures and bulbs which are driving improvements in applications such as general illumination, roadways and highways, parking spaces and garages, petrol stations, signage and retail stores. “The CR series is truly a no-compromise alternative when upgrading from fluorescent lighting,” said Russ Gittleson, CEO of Light Kinetics. “Delivering higherquality light, longer life, lower glare and greater energy savings than any comparable fluorescent options, the Cree® CR series troffers are a natural fit for office settings.” Backed by a Cree® original 10 year warranty on the CR22 LED fixtures, the risk of investing in this new technology is fully mitigated.

Bamboo is the new

green

As an alternative to hard wood trees, bamboo is extremely eco-friendly. In cutting down trees, the deforestation of rainforests and lands across the world has created several problems that will take decades to reverse. With the growing trends in environment awareness, bamboo has cropped up as a green alternative to other woody raw materials. From soft bath towels, to sturdy buildings and homes, bamboo is used for products in nearly every industry. Most bamboo fences, tables, and chairs are made in sustainable and eco-friendly ways. If you are looking for sturdy bamboo furniture or bamboo flooring, just do your best to find a brand that uses as little formaldehyde as possible. Consider manufacturers that use urea-formaldehyde glue. It doesn’t emit any toxins once it is dry. Bamboo is naturally resistant to rot, termites, and other pests, making it an excellent choice for sturdy buildings and outdoor décor. The plants produce a great deal of oxygen, and can process large quantities of carbon dioxide emissions. Since it grows in diverse climates, it can be planted in strategic areas to control emissions and reduce carbon dioxide gas from other sources.

www.reimag.co.za

Clean with

Forget granite, think

eco

ECO by Cosentino is a new, eco-friendly decor and construction product that is created from 75% recycled materials. It is aesthetically beautiful and is available in 10 designer colours. It has a variety of decorative and construction project uses, including bathroom surfaces and kitchen countertops. It could be considered the eco-friendly alternative to granite. This state-of-the-art product is created using processes that comply with the highest of environmental standards, making it highly sustainable. Reusing post-consumer and post-industrial materials at the end of their life cycle helps to conserve the planet’s natural resources. Durable yet malleable, the recycled elements of ECO are bound together using an environmentally-friendly resin derived in part from corn oil.

green

Eco-friendly cleaning products in South Africa are cleaning products that do not harm the environment, whether in their production, use or disposal. Some South African “going green” eco-friendly cleaning products when in use, help conserve energy, minimise carbon footprint or the emission of greenhouse gases, and do not lead to substantial toxicity or pollution to the environment. Other eco-friendly cleaning products in South Africa are biodegradable, recyclable or compostable. Hence, they do not harm the environment or upset the ecological balance when they are disposed of. There are also eco-friendly products in South Africa that are made out of recycled materials. Look for manufacturers that list their ingredients either on the label or on their websites.

September 2013 SA Real Estate Investor

03 MINUTES

FROM AN OFFICE AT DUBE CITY TO KING SHAKA INTERNATIONAL AIRPORT

120 000 SQM

OF BULK TO DEVELOP

60 YEAR PLAN MASTER

ZONED FOR

300 SEATER

FULLY EQUIPPED

CONFERENCE CENTRE

30 MINUTES

FROM DURBAN CBD

BUSINESS RETAIL AND HOSPITALITY

& RESTAURANT

HOTEL COMING SOON

10 BLOCKS TO DEVELOP

1GOAL TO MOVE YOUR BUSINESS FORWARD

CUBE/36900

Dube City is the next generation retail, hospitality and business precinct – a purpose-planned airport city close to King Shaka International. And a city built to connect you to the world … and move your business forward. www.dubetradeport.co.za

REI Commercial

New Act Passed Into Law

New Capital Structure Introduced

Carbon Tax A Negative?

T he S p at i a l P l a n n i n g a nd L a nd Us e Management Act seeks to bridge the racial divide in spatial terms and to transform the settlement patterns of the country in a manner that gives effect to the key constitutional provisions. It will address the legacy of the discriminatory, inefficient and costly special pattern which puts a considerable burden on the public resources. The Act will also ensure that the restructuring of the South African cities, towns and settlements is in line with the priorities and principles of the democratic government. Land Affairs Minister Gugile Nkwinti said the legislation would ensure the system of spatial planning and land use management promoted social and economic integration and inclusion.

Growthpoint Properties Limited has become the first SA REIT to introduce a new capital structure, converting from complex linked units to the straightforward ordinary share structure. Friday, 2 Aug ust, was the f irst day for Growthpoint’s investors to deal in the new ordinary shares on the JSE. Norbert Sasse, CEO of Growthpoint Properties Limited says: “Growthpoint’s new capital structure is cleaner and simpler. It has been welcomed by our investors. Taking this exciting path was a natural step for us in becoming a full REIT. Growthpoint’s change to ordinary shares represents the international best practice for a REIT and, for that matter, any publicly traded investment.” Growthpoint’s REIT status was granted by the JSE and it began trading as a REIT on the JSE with effect from 1 July 2013.

The SA Chamber of Commerce and Industry (Sacci) claims it is concerned about the possible ‘malign economic impact’ of the proposed carbon tax. It added the effect of such a tax on the economy would be ‘signif icant’ and might have ‘severe effects’ on job creation and SA’s international competitiveness. Sacci had submitted commentary to the Treasury on the policy paper. This concerns the introduction of a carbon tax of R120 a metric tonne on emissions of carbon dioxide from 2015 onwards. The chamber said there was little detail on policy options such as tax credits for companies that invested in energy-efficient machinery, and ‘deep concern’ that the tax would not reward carbon mitigation.

Valuable Input

Ken Reynolds, Regional Executive, Nedbank,

Amanda Stops, CEO, South African Coucil of Shopping Centres

Charles Vining, MD, Seeff Sandton

Shiraaz Hassan, Director, Asrin Property Developers

Stefano Contardo, Development Executive, Improvon

“The property market usually lags the business cycle by up to 24 months so the property sector will probably remain relatively flat in the near term.”

“The research shows the average shopper visits malls 38 times a year and spends 80 minutes on average per trip. Increasingly, when we go shopping we take our online lives with us too.”

“New commercial development in Sandton will see thousands of employees relocated to offices in the Sandton CBD. All this development will inevitably create a big demand for residency.”

While the majority tend to focus on the negatives in South Africa, our European counterparts have to face far bigger woes and appear to be managing these challenges. South Africans, too, need to focus on fixing our future.”

“We believe all property developers have a moral obligation to ensure that their developments have less dependence on our planet’s natural resources than they have in the past. Going green should be a necessity for all property developers.”

www.reimag.co.za

September 2013 SA Real Estate Investor

STRATEGIES

BY KEN GAFNER

Gas-Powered Generation

The future of energy is here

ower in South Africa is predominantly generated in large coal - burning power stations. Each kilowatt-hour of electricity consumes 1.42 litres of water, produces 161g of ash and puts enough CO2 into the atmosphere to fill a 1kg CO2 fire extinguisher. This makes South Africa one of the major contributors to CO2 emissions worldwide with emissions from power generation exceeding all European countries except Germany. Electricity in South Africa is no longer cheap. Energy efficiency interventions and fuel switch projects, which were previously not financially viable, have become increasingly attractive. Buildings and industrial processes in South Africa typically have very poor energy efficiency with substantial corrective action required to bring these in line with current South African and international standards.

The potential for green energy to reduce emissions Green energy has moved from the lunatic fringe to mainstream for all the right economic and sustainability reasons. An industry has developed around energy optimisation with the benefit of proper support from Government through Eskom subsidies and incentives. Solar photovoltaic projects, again with the support of incentives, are being deployed at an impressive rate. Nat u ra l g a s is a c lea n f uel w it h low emissions relative to the South A frican grid electricity, coal or liquid fuel. The most effective application of gas is in displacing these energy sources for heating applications. In these applications virtually all the energy in the gas is effectively used, providing clear cut cost benefits. Buildings such as hospitals, residences and hotels, with a substantial and relatively constant hot water or steam demand, are idea l for conversion to gas-powered heating. 40

September 2013 SA Real Estate Investor

Gas-powered generation with effective use of the waste heat has not achieved its potential in South Africa. This technology is known as Combined Heat and Power (CHP) and provides exciting opportunities for industrial plants and buildings with access to a gas supply. Power is generated onsite using gas engines or micro-turbines with engine waste heat captured for heating and cooling. In ideal cases over 80% of the input energy is used compared to 30% for conventional coal-fired generation. This solution is cost effective and reduces emissions by over 50%. CHP is a well-entrenched technology in Europe, where 11% of power (2008 figures) is generated by CHP with several countries over 30%. This is largely due to well-developed gas distribution infrastructure and realistic pricing of gas relative to electricity. The gas distribution network in South Africa is limited to Johannesburg and a corridor along the route of the Sasol pipelines. This, coupled with low electricity tariffs has, until recently, inhibited the uptake of own generation.

CHP has the potential to improve energy eff iciency and reduce emissions in South Africa. It is estimated that, by 2030, CHP could contribute 17% of total electricit y generated in South Africa which would have a significant mitigating effect on South Africaâ&#x20AC;&#x2122;s CO2 emissions. T he pr ic ing u ncer ta int y a nd l im ited availability of gas have increased project risk and resulted in many projects being deferred or shelved. The new NERSA regulations, coming into effect in 2014, cap the maximum selling price of gas with future increases coupled to the cost of the basket of energy sources in South Africa. This creates predictability in gas pricing and allows suff icient margin for other gas suppliers to enter the market when it is opened in 2014. All natural gas in South Africa is currently delivered via the Sasol pipeline from central Mozambique which does not have sufficient capacity or reserves to support large scale CHP take-up in South Africa. Developments which could positively inf luence gas availability in www.reimag.co.za

COMMERCIAL South Africa include signif icant gas f inds in Mozambique, the shale gas potential of South Africa and the regional availability of liquefied natural gas (LNG). In particular, the regional availability of LNG offers exciting opportunities for the creation of gas supply nodes in all of the South African coastal metros. An adequate supply of natural gas could be made available to realise the CHP potential of South Africa. A positive driver for CHP development in South Africa is the Absa Energy project in central Johannesburg which is the only commercial scale CHP project supporting an office campus. The other CHP and trigen projects in South Africa are small scale and support only a relatively small part of the site load. The Absa project provides an example of the proper implementation of the technology, lowering the risk for projects to follow.

The Absa energy project The Absa Campus in central Johannesburg comprises seven buildings, providing 140 000m2 of offices and data space, with a combined load of 14MVA. The Campus is supported by an Energy Centre which operates in parallel with the incoming City Power utility supply. The Absa Energy project commenced operation in May 2010. The Energy Centre is equipped with 4 Jenbacher gas engines each of 3MW nominal rating. As added security the diesel powered emergency generators in each of the Campus

www.reimag.co.za

buildings were retained and an additional 6MW of emergency diesel generators were installed to supplement the gas generators under power failure conditions. This provides an exceptional level of security of supply with the Campus able to be supported by the utility supply, gaspowered generation or local diesel generation. The Energy project required the Campus to be ring-fenced outside the City Power network with a new utility supply point and internal distribution. An intake substation was built to provide a new centralised intake point. New internal MV distribution at basement level links all buildings. The sleeve network linking the basements provides routes between buildings for MV electrica l distribution, low temperat ure hot water distribution and chilled water distribution. Approximately 10 0 sleeves ranging from 200mm to 700mm diameter were drilled between the basements of all the Campus buildings. The gas engines operate from 06h00 to 20h00 weekdays and Saturdays under the control of two operator shifts. The Campus load as seen by the utility is controlled at the night time load demand by varying the level of own generation. This provides a f lat load prof ile resulting in low maximum demand charges. The load profile is regularly monitored and optimised to minimise operating costs. Diesel Electric Services are responsible for the operation of the Energy Centre for Absa.

Monitoring and optimisation is undertaken by Single Destination Engineering. The Energy Centre is supplied with natural gas from the Egoli Gas piped distribution network in central Johannesburg. The gas supply capacity is adequate for expansion up to 15MW of generation. Egoli Gas supplies Johannesburg from three intake points off the Sasol Gas network. The Absa Energy project necessitated linking the three networks and upgrading the overall gas distribution network in central Johannesburg.

Campus heating and cooling Typically one third of the input energy to a gas engine is converted into electrical power with the remainder dissipated via the exhaust and engine cooling system and radiated into the plant room. The majority of this heat is easily captured for heating and cooling applications. This allows the exceptional energy efficiencies achievable with CHP projects. Waste heat from the gas engines is captured and d ist r ibuted to the Campus as low temperature hot water (LTHW). The LTHW displaces electric building and domestic hot water heating. This free energy displaces electrical consumption reducing the building and Campus load. The Absa Towers West buildings use waste heat for building heating and domestic hot water. During the last winter season, the buildings achieved an impressive maximum demand reduction of 30% and a 25% reduction in electricity consumption. The

September 2013 SA Real Estate Investor

STRATEGIES majority of the Campus buildings pre-date the Energy Centre and are not readily able to utilise LTHW for heating. The LTHW system will be expanded as Campus buildings are refurbished. The waste heat can also be utilised to drive absorption chillers to generate chilled water and provide building cooling. The economics of providing cooling from waste heat are improving but have not yet reached the point of being an attractive business case. The Energy Centre has the potential to displace the cooling load of the three largest buildings on the Campus.

The first three years The financial benefits of the Energy Centre have improved steadily over the first three years of operation. This has been achieved through constant monitoring and regular optimisation. A comprehensive monthly report is produced by SDE which provides Absa with the information required for group- wide energy reporting. T he Eskom Emergenc y Generation Programme allows Eskom to dispatch private generation during times when the South

Africa electricity grid is under stress. Absa has been contracted under this programme since October 2012. The daily dispatch for typically four hours on weekday evenings d isplaces the r isk of load shedd ing for approximately 3000 houses. The system is functioning smoothly with benefits for Absa, Eskom and South Africa.

“Carbon Tax will be introduced in 2015. This will provide a tangible financial benefit” The Energy Centre is operating reliably and is transparent to the staff on the Campus. The financial and resilience benefits are quietly present in the background.

The future The Energy Centre has a remaining useful life of at least another 20 years. Over this time it will continue to be a valuable asset. T he new NER SA pricing reg u lations provide a new level of certainty in gas pricing

Single Destination Engineering Specialists in Data Centre and Energy Solutions

Our core expertise includes:  Energy centres and emergency power generation  Combined heat and power solutions  Alternative energy systems  Energy efficiency solutions  Data centres and high resilience installations  Risk and single point of failure analysis  Planning of works in a live critical environment

Tel:

+27 11 997 2340

Email: contactsde@sde.co.za Web: www.sde.co.za

which, together with increasing gas supply competition following opening of the market, is likely to lead to further improvements in the financial viability of projects. The Carbon Tax will be introduced in 2015. This will provide a tangible financial benefit from the reduced Campus emissions due to the Energy Centre. As Campus buildings become due for refurbishment there will be the opportunity to make optimal use of the Energy Centre waste heat for building heating, domestic hot water and cooling. This will result in a corresponding reduction in CO2 emissions and Campus electrical power consumption. The Energy Centre has achieved its targeted benefits over the first three years. The next twenty years are exciting with the building refurbishment programme providing the opportunities for on going improvements to the Campus energy efficiency and carbon footprint .

RESOURCES

Single Destination Engineering

IMPROVING

BY CATHERINE PATE

Fast Facts

The benefits behind your green building

lobally, the built environment is responsible for one third of all green house gas emissions/carbon emissions and energy eff iciency and introducing more renewable sources of energy is a current priority for South Africa as it faces a medium-term national power supply shortage and steeply rising electricity tariffs. Green building presents the simplest, most-immediate and single largest opportunity for greenhouse gas abatement, outstripping energy, transport and the industrial sectors combined. The movement is an opportunity to use resources efficiently and address climate change while creating healthier and more productive environments for people to work and live in.

Lower operating costs Research reveals that Green Star SA buildings enjoy energy savings of between 25% and 50% compared to buildings designed to SANS 204 standards. The payback periods of energy and water saving practices are becoming much shorter as a result of increasing utility costs and the wider availability of more affordable green building technology.

Higher returns on assets Extensive studies in the United States and Australia have shown rental rates in green buildings to be approximately 6% and 5% higher, respectively.

Increased property values Decreased operating costs, lease premiums and more competitive, less risky, future-proofed buildings contribute to the value of green buildings. This has been empirically proven in the United States and Australia with 11% and 12% valuation premiums, respectively. Enhanced marketability Green building creates a differentiated product in the market, which is viewed as technologically advanced and environmentally and socially responsible. These attributes are positively linked to the company brand and image of the owner and/or the tenant.

Increased productivity Improved internal environment quality (IEQ) from increased ventilation, temperature and lighting control, the use of natural light and the absence of toxic materials result in the improved health, comfort and wellbeing of building occupants. This has been shown to increase productivity – always a significant factor in the profitability of a business. Studies show improvements in productivity of up to 20% which easily covers any premium paid for higher quality green space.

Reduced liability and risk Green buildings are future-proofed against increases in utility costs, potential energy and water supply problems, tightening legislation, carbon taxes and the impact of mandatory energy efficiency disclosure, as well as costly retrofits or even obsolescence. Sustainability risk factors can significantly affect the rental income and the future value of real estate assets, in turn affecting their return on investment. Retaining government and other major tenants The Department of Public Works’ planned ‘Green Building Framework’ is likely to include certain green building requirements for government accommodation. This will increasingly apply to large multi-national tenants too. Responsible investing Investment in green building is an integral part of the worldwide trend to more responsible, sustainable and ethical investing. As investors and occupiers become more knowledgeable about and concerned with the environmental and social impacts of the built environment, buildings with better sustainability credentials will have increased marketability. Additionally, there is a demonstrated link between the green characteristics of buildings and the ability of these buildings, in some markets, to more easily attract tenants and to command higher rents and sale prices.

Attracting and retaining talent Skilled staff members are hard to attract and retain. However, educated people, particularly younger graduates, are increasingly aware of sustainability and wellness issues and consequently, may be more attracted to working in a green environment. Minimising churn W ith in creas e d co mf o r t an d o ccup ant satisfaction and more flexible spaces, green building can minimise the costs and impact of churn. With lease terms in South Africa typically ranging between 3 and 5 years, churn represents a significant cost to businesses. Combat climate change Green building practices can have a significant impact on combating climate change and help to create truly sustainable communities. In practice green building measures include: • Careful building design to reduce heat loads, maximising natural light and promoting the circulation of fresh air. • Energy-efficient air conditioning and lighting. • Using environmentally friendly, non-toxic materials. • Reducing waste and using recycled materials. • Water-efficient plumbing fittings and water harvesting. • Using renewable energy sources. • Sensitivity to the impact of the development on the environment.

RESOURCES GBCSA

www.reimag.co.za

September 2013 SA Real Estate Investor

GETTING STARTED

BY JAMES COLBY

Sustainable Buildings Investing in the future

c cord i n g to Stefa no C ont a rdo, Development Executive at Improvon, it makes sense from both an ethical and economic point of view to implement as many green technologies as possible whether it is a building which is being retrofitted or a new development. “In a new building the overall project design is imperative. The way a building is orientated is critical to ensure that it gets maximum light, but obviously not direct light, as you want to avoid heat build up inside the building. The way you choose to build, the materials you use

September 2013 SA Real Estate Investor

and the suppliers you work with are all crucial elements in ensuring that an industrial or commercial space is ultimately ‘green’.” One building which has met the green standards and then some is the new Standard Bank building situated in Rosebank, Gauteng. The new 65 0 0 0m² building, current ly referred to as Standard Bank Rosebank, has been awarded a five-star design rating by the Green Building Council of South Africa. Says Mr Stewart Shaw-Taylor, Head CIB Real Estate, Standard Bank. “Sustainability is a holistic approach, so, we are particularly

pleased that everything we’ve done at Standard Bank Rosebank contributes to the creation of a sustainable environment, both internally and externally, for staff, as well as for visitors and for the public use park area.”

Water Water will be conserved inside the building through water-efficient fittings such as dual f lush toilets, low f low showerheads and tap aerators. For external use, water infiltrating the basement as a consequence of high ground water levels will be captured and used for irrigation of the gardens. This will

www.reimag.co.za

GETTING STARTED be supplemented by rainwater harvested from the roofs. The rainwater harvesting alone will reduce potable water demand by 56%. The building contains 50% evaporative cooling systems and 50% air-cooled chiller systems. While evaporative cooling systems are energy eff icient, they use a substantial amount of water. This consumption will be monitored.

Energy An existing Egoli Gas main gas line runs past the property. The building therefore makes use of a gas powered tri-generation plant. Trigeneration is the simultaneous production of electrical energy and heat and cooling from a single energy source such as natural gas. Trigeneration is commonly referred to as CCHP (combined cooling, heating, and power generation). Further energy savings will be achieved through efficient lighting. The lighting power density has been reduced to below 2.5W/m² per 100 Lux. A digitally addressable lighting system (DALI) has been installed for 99.26% of the usable area. This allows individual light fittings to be programmed according to need, and facilitates automatic dimming and switching of lighting based on occupancy and daylight availability in the space. Lighting and light power will be individually monitored per f loor and energy uses greater than 100KVA will be separately metered. No light beam on the piazza or in the garden is directed into the night sky, so external light pollution is minimised.

Materials Over 60% of the building’s steel has more than 90% post-consumer recycled content, massively reducing the embodied energy. Fifty percent of all the timber has been sourced from Forest Stewardship Council-certified suppliers. A minimum of 20% of the bulky materials permanently installed in the building will be procured from w ithin 40 0k m of the construction site, reducing carbon emissions t hat wou ld ot her w ise re su lt f rom t he transportation of materials. When you are developing buildings it’s very important what type of materials you use. There are a number of green materials which 46

September 2013 SA Real Estate Investor

will add value to your building, one such is clay bricks. Clay bricks provide sustainability consequent to t hei r longe v it y, proven durability and structural integrity beyond 100 years. This mitigates future carbon debt associated with replacement and maintenance of less durable walling materials. Clay bricks contain natural mineral properties recognized for meeting all necessary requirements for healthy living, their inert qualities assure no release of toxic fumes or VOC’s to impinge on air quality and the mass enhanced R-value they provide to SANS 204 compliant brick walls assures superior thermal comfort and the lowest heating and cooling energy usage in South Africa’s major climatic zones. Clay bricks’ comparably low lifecycle cost further defines clay brick as peerless for sustainable house construction in South Africa.

Facade The glass curtain wall system covers more than 65% percent of the vertical external surfaces of the building. It extends for 12 50 0m² - equivalent to 50 tennis courts. It is tripleglazed w ith built-in remotely-activated shading blinds. The blinds can be retracted into the framing system to enable maximum natural light on cloudy days.

Electrical The building’s Digital Addressable Lighting Interface (DALI) system, which connects the 4 ,500 luminaires in the office areas to a computer, enables lighting to be re-configured without re-wiring fittings. Different lights can be programmed to respond to different situations without affecting the surrounding lights. The energy usage of individual light fittings can be monitored and Maintenance can be alerted when a lamp or ballast fails, saving maintenance time. Five Dynamic UPS generators, each producing 1.65MW, provide the building with full “No-Break ” back-up power.

Air-conditioning The system uses mix air cooled chillers (to reduce dependency on water) and water-cooled chillers (for their higher energy efficiency). Fresh air is preconditioned using indirect evaporative cooling in summer and reverse cycle heating in winter.

Lifts and escalators All lifts and escalators meet environmental

a nd s u s t a i n a bi l it y re q u i rement s . T he equipment has low-energy features, lowering power consumption. The building has the ability to manage lift and escalator trips to ensure passengers move through the building in the most efficient manner.

Interior design Materials such as granite, marble, stone and natural timber speak of quality, permanence and integrity. They will wear gracefully and remain timeless. The sustainably-sourced timber has been selected for its pronounced grain and honeyed warmth, tactile to touch and natural in feel. “It’s an unavoidable fact that any development will have an impact on the environment,” admits Contardo. “However, we believe it is our responsibility to mitigate these impacts as far as possible and reduce the carbon footprint of each development as much as we can.” In addition to the obvious corporate social responsibility benef its, there are f inancial benefits to greening an industrial space, he reveals. “From a financial point of view there is no doubt that you do cut down on costs and you will save money in the long term. However, more than that, we believe all property developers have a moral obligation to ensure that their developments have less dependence on our planet’s natural resources than they have had in the past.” Going green should be a necessity for all property developers, argues Contardo. “We’re firmly of the opinion that the more you can, the more you should. Irrespective of the type of development, we make every effort to ensure a pleasant working environment which has as many green elements included as possible.” Improvon and Standard Bank are two of the many companies in South Africa that are becoming increasingly green and looking to incorporate functional and attractive bu i ld ings w it h susta inabi l it y a nd ecosavings. The buildings of today have to take into account the problems of tomorrow and one of the biggest problems facing the world is sustainability, and all it takes is one small green step in the right direction.

RESOURCES

Improvon STD Bank www.reimag.co.za

LEGAL MOVES

BY PATRICK FORBES

Environmental Indemnification Look a little closer at the laws

ver the past 15 yea rs since the promu l g at ion of t he Nat iona l Environmental Management Act (NEMA), there has been an array of further environmental litigation that has entered our legal landscape. This raft of laws has however created a highly reg ulated env ironment within which to operate, and business has accordingly sought to identif y the risks associated with falling foul of such legislation and to identify the necessary means to avoid those risks where possible. The reaction from the market place to the onslaught of “green law” has been varied, depending largely on the sector in which a particular business operates, but there has certainly been a clear acceptance by business of the legislation that has been passed to regulate and control our interaction with the natural environment around us. Part of this acceptance by business is evident from property agreements relating to purchase and sale transactions, leases and mortgage bonds amongst others, in which there is a proliferation environmental indemnification clauses in one form or another. These clauses are drafted, depending on the nature of the agreement, with a view to minimising the risk to one or other party entering into the agreement, for environmental damage and the costs that may be associated with remedying any such damage. But how effective are these indemnifications, and do they adequately cover the parties for the risk posed? Part of this raft of green legislation is the National Environmental Management Waste Act (NEMWA), which deals with, amongst a number of other aspects, the classification, the disposal, the recycling and the treatment of waste. When NEMWA was brought into force there were, however, certain provisions that were not brought into operation at the time the act was promulgated and will only to be in force at some unknown later date. Nonetheless, consideration of these provisions may reveal

September 2013 SA Real Estate Investor

certain shortcomings in the legislation and it is therefore vital to ensure that indemnifications serve their purpose for the party seeking to be indemnified. Sections 35 - 41 of NEMWA, the remediation or contaminated land provisions, although not yet in force, are set to become effective at some later date. These provisions in their current wording will allow for them to be applied retrospectively, in other words, applicable to circumstances that may have taken place prior to the law actually coming into effect. This is unusual in a legal context, but it means that one is forced to take cognisance now of what is intended as the provisions may have an impact upon actions taken both now and in the past. In order to understand the nature of how an indemnity will or will not provide the protection sought, one needs first to examine how the

proposed contaminated land provisions will operate. The provisions allow for the Minister or the MEC to identify contaminated land by way of a notice to be published in the government gazette, or a notice to a particular person, to identify what is termed an “investigation area”. Once the investigation area is established, the Minister or MEC may then cause a site investigation to take place by directing either the owner of the property within which the investigation area is located, or the person conducting the activity that has caused or may have caused the contamination, to conduct a site assessment. Once a site assessment report has been completed considered, there are four options available to the Minister or MEC, in respect of the investigation area, 1) to declare it a risk that warrants immediate remediation, 2) to declare it a risk that requires remediation over a specified period, www.reimag.co.za

LEGAL MOVES 3) to recognise the risk and implement monitoring and management measures to manage the risk, and lastly, 4) to make a f inding that the land is not contaminated. If remediation is required the Minister or MEC can then make what NEMWA refers to as a remediation order which, to the extent that it is applicable, must identify the person to whom the remediation order relates, the land, the measures that have to be taken to remediate the land and the period with which the remediation must take place. What is evident from the above is that the discretion in terms of who receives the notice identifying an investigation area, and who is then directed to remediate the contaminated land, lies wholly with the Minister or the MEC. This discretion when exercised could have enormous cost implications for the party who the Minister or MEC has in his sights as the one to remediate the land in question. The purpose of these provisions, which is to provide for the remediation of contaminated land, means that the Minister or MEC will be

September 2013 SA Real Estate Investor

looking to a person, and this includes juristic persons, who will be in a position to undertake a site assessment or appoint the necessary professionals to conduct it and to be in a position to effect the necessary remediation should same be required. It goes without saying that the remediation of land, depending on the scale thereof, could be a costly and time-consuming endeavour and as such the Minister or MEC will be looking to the person, whether that be the owner, the tenant, or the party undertaking the activity causing the contamination, who would be in financial position to do so.

“Consider environmental indemnifications more closely and ensure they minimise the risks” Given the above, will the environmental indemnif ication clause contained in the lease, the purchase and sale agreement or the mortgage bond serve to assist the party seeking indemnification? Given the discretion is with the Minster or MEC to choose the person to whom the site assessment and remediation plan will apply, the indemnification, depending on its particular wording, may be of no assistance

whatsoever. Section 38 (4) specifically states that a remediation order “must be complied with at the cost of the person against whom the order or directive is issued”. There can be no confusion in terms of the interpretation of section 38 (4) or what the legislature intended. The person/s set out in the remediation order must at their own cost give effect to the order. Yes, you may be in a position, once the remediation has been effected, to institute action to recover the loss sustained, and this action may be based on an indemnification clause, but this further action will of course incur further costs and time, whilst in the meantime the costs incurred due to the remediation will have to be borne by you. With this in mind, it may be time to consider those environmental indemnifications a little more closely and ensure that they minimise the risks to the greatest extent possible. The Minister or MEC may, however, be the one having the last laugh.

RESOURCES Garlicke & Bousfield

www.reimag.co.za

LISTED

BY IAN ANDERSON

Reading Listed Results Become fluent in finance jargon

or ma ny investor s, inter pret ing a company’s financial accounts can be a daunting challenge. In the listed property sector, the task appears no less daunting, given the number of accounting standards that create a great deal of noise, but shed little light on the financial well-being of the company. In reality, the analysis of a listed property company’s financials is actually quite simple because the business model is easy to understand. Listed property companies all own, buy, sell, develop and redevelop properties (the assets). Some companies will have investments in other listed property companies, which would also form part of the asset base. The assets are the source of all revenue, either in the form of rental income, the recovery of operating expenses from tenants or from distributions if they have investments in other listed property companies.

The company will also incur administrative expenses, like staff salaries and the expenses associated with being a listed entity. Those companies with internalised management str uct u res can control for increases in administrative expenses, while external management arrangements are based on a set percentage of company enterprise value (the value of the company’s issued share capital on the JSE Limited plus the value of the company’s debt) and are influenced by changes in the share price and the issued share capital. The f inal signif icant line in the income statement of most listed property companies is net finance costs – the difference between interest earned on cash holdings and the interest paid on borrowings. The typical listed property company in South Africa has borrowings equal to 30% of the value of the assets, typically referred to as gearing or the loan-to-value ratio.

items) to distributable income. The balance sheet is also fairly simple to understand, dominated on the assets side by the property portfolio and investments in other listed property companies, funded through a combination of equity and debt capital. Occasionally, there will be slightly more confusing balance sheet entries, usually as a result of Black Economic Empowerment (BEE) transactions entered into and where loans or financial assistance has been provided to the BEE par tners. The deferred ta x liabilities raised on the sale of properties will be removed from balance sheets due to the introduction of Real Estate Investment Trust (REIT) legislation which exempts REITs from capital gains tax. All South Africa’s property loan stock companies are expected to apply for and be granted REIT status by the JSE Limited.

Listed property companies will incur expenses Apart from financial metrics, listed property relating to the production of revenue, including Most income statements w il l have an compa n ie s w i l l a lso d isc lose prop er t y maintenance of the properties, commissions element of noise that does not impact on portfolio metrics, which may include a lease paid to brokers, municipal rates and utilities the distributions payable or the cash f lows expiry profile, average rentals per property (some of which will be recovered from tenants). produced by the company. These typically type, geographic spread, average cost per These expenses are lumped together on a single include an adjustment for straight-lining square metre by property type, as well as an line in the income statement as in-depth analysis of leasing activity operating expenses. The ratio of TYPICAL INCOME STATEMENT (EXCLUDING NOISE) in the period under review. xxx xxx operating expenses to revenue will Revenue - contractual rental - tenant recoveries xxx xxx vary from company to company Over the past decade, disclosure Less: Operating expenses (xxx xxx) and is dependent on factors such by South Africa’s listed property Add: Distributable income from listed property investments xxx xxx as the mix of properties within the companies has improved dramatically Less: Administrative expenses (xxx xxx) portfolio. The difference between Less: Net finance income (excluding linked debenture interest) (xxx xxx) and our companies rank among the revenue and operating expenses is Distributable income world’s best in terms of transparency. xxx xxx referred to as net operating income This makes the job of forecasting (NOI) and reflects the performance of future distribution growth far simpler the property portfolio. The level of NOI growth, rental revenue and fair value adjustments on and is one of the reasons why analysts covering after adjusting for property acquisitions and the property portfolio, as well as on derivative the listed property sector are never far off the dispositions, gives analysts a clear indication of instruments used to hedge out interest rate risk. mark with their forecasts. the quality of the property portfolio, as well as Most companies will provide a reconciliation RESOURCES the effectiveness of company management. of accounting profits (including the non-cash Grindrod Asset Management 52

September 2013 SA Real Estate Investor

www.reimag.co.za

CAPITAL PRESERVATION AT ITS CORE Prescient Investment Management is a leading quantitative asset manager, headquartered in Cape Town with additional offices in Dublin, Windhoek, Johannesburg, Pretoria, Durban and Stellenbosch. Prescient also has a representative office in Shanghai and we were the first asset manager in Africa to be awarded a QFII (Qualified Foreign Institutional Investor) licence to invest directly into China. Founded in old stables, Prescient has evolved into a global player. It has been 15 years since we opened our doors for business, offering to the market our unique quantitative approach to asset management. With capital preservation at the core, Prescient’s investment philosophy is simple: PEACE OF MIND. At Prescient Investment Management we aim to give our clients a level of certainty around their investment outcomes, with a commitment to achieve no less than the agreed risk benchmark, and thereafter to look for opportunities to add value over and above this benchmark. We do not merely diversify risk: risk is measured and managed holistically using proven quantitative techniques. Our systematic approach to managing risk is scalable and enables us to replicate our investment process across all markets. When it comes to implementing our process, we adopt a team-based approach and consistently work together in a streamlined manner. Each of us understands our clients’ risk tolerances and this knowledge helps us to meet their expectations of not losing capital. Prescient aims to deliver only the highest quality of service, and hence we do not outsource our portfolio administration. Retaining our own administration provides us with full control of our service delivery and allows us to monitor service quality across all areas of business, thus remaining fully accountable to our clients. Prescient Investment Management has been named Absolute Returns Manager of the Year at the 2013 Imbasa Yegolide Awards for Professional Excellence, hosted by the Principal Officers Association (POA) to acknowledge outstanding service delivery and leadership in the industry. Prescient previously won the Overall Investment Manager of the Year Award at the 2011 Imbasa Yegolide Awards.

RANGE OF INVESTMENT PRODUCTS Unit trUsts Local Funds Offshore Funds retirement solUtions Living Annuities Retirement Annuities Preservation Funds Umbrella Funds Private WealtH manaGement Email: info@prescient.co.za

The animal sculptures were created by visionary South African artist, Beth Armstrong. Never deviating from formation, geese always stick to their flight path. That way, they manage to migrate successfully year after year. Prescient doesn’t zig or zag either. When it comes to investing, we consistently work together, allowing our clients’ investments to grow successfully. Like geese, we also adhere to a team-based approach, working together to reach new heights in the most efficient streamlined way.

SMART MOVES

BYJAMES COLBY

Invest In Power New energy solutions in business

ountries like the USA are leading the way when it comes to corporate retailers and wholesalers investing in sustainable buildings. They are well ahead of public bodies when it comes to commercial solar panels and investing in more sustainable modes of energy. So where does South Africa fall on this scale and what are we doing to make sure that the commercial sector is geared towards green? In the USA, companies like Wal-Mart and IKEA have topped the charts in terms of their efforts towards sustainability. Wal-Mart has installed more than 150 US solar projects and plans to have 1000 solar-powered locations by 2020. IKEA has a strong commitment in photovoltaic (PV) energy, and has plans to double its investment in renewable energy, their ultimate aim being to produce as much energy as they consume by 2020. With the cost of business rising in South Africa, electricity has become a costly burden to bear and petrol is already at R13 a litre, now is the era for sustainable business. It makes economical sense to install renewable energy technologies. South Africa faces a power shortage and, in the next 20 years, will need to build

September 2013 SA Real Estate Investor

40 0 0 0M W of new generating capacit y. Eskom has repeatedly stated that it cannot do this alone and will require the entrance of independent producers. An independent systems and market operator was highlighted in t he Nat iona l De velopment Pl a n a s necessary to widen participation and accelerate investment in the electricity sector. One way that South Africa is looking at resolving t his is t h rough t he Renewable Energ y Independent Power Producer Procurement Programme, (REIPPPP), which aims to have 3 725 megawatts of electricity generated from renewable energy sources for the national power grid, and to transform the South African power grid. One of the projects in REIPPPP is that of the Energy Minister Dipuo Peters: a R240 million RustMo 1 Solar Farm developed by black-owned energy group Momentous Energy. The group is one of 18 preferred bidders in the first window of the Department of Energy’s Renewable Energy Independent Power Producer Procurement Programme. T he bidders w i l l generate 631M W of electricity from solar parks ranging in capacity from 5MW to 64MW. The government’s drive to exploit renewable energy is gaining

momentum, as South Africa’s energy needs become more pressing.

Other projects in the pipeline Search engine giant Google has invested R103 million in the Jasper power project, a 96-megawatt solar photovoltaic plant near Upington in South Africa’s Northern Cape province, the organisation announced. The project will be developed and funded by US solar energy project development firm SolarReserve, wind and solar farm developer Intikon Energy and empowerment investment company the Kensani Group. Rand Merchant Bank, the Public Investment Corporation, the Development Bank of Southern Africa and the Peace Humansrus Trust have also backed it. Once complete, the Jasper project will be one of the largest solar installations in Africa, capable of generating enough electricity to power 30 000 homes in the country. Not to be left out of the renewable energy race, Eskom obtained the energy regulator’s approval to build a R2.4 billion wind farm in the Western www.reimag.co.za

COMMERCIAL

Underground coal gasification

Vodacom Century City

Wind generation map

Cape. Construction is to begin this year, with the farm to deliver up to 100MW of electricity by the end of next year. The project, at Koekenaap in the Vredendal area, is expected to enter commercial production by the end of next year. “Sere is our first large-scale renewable energy project,” Eskom chief executive officer Brian Dames said in a statement, “It demonstrates our commitment to reducing our carbon footprint and to investing in a sustainable energy future.”

“At the same time, this is not a project we can execute alone, and partnerships such as the one [with Sasol] will help us maximise the benefits to South Africa.”

putting a number of green initiatives in place to reduce the carbon footprint of travellers, developers, manufacturers, retailers, service providers and others who use the facilities of Dube TradePort or work there.

The project is set to cost R2.4 billion and to be in commercial production by the end of 2014. Another project in the pipeline is between Eskom and petrochemicals firm Sasol. They have signed a research agreement to explore the potential of underground coal gasification (UCG) technology to boost the country’s energy reserves.

Another important tool in the renewable energy effort is the Wind Resource Map, launched in August, the Wind Resource Map is a vital instrument in government’s planning for efficient use of the country’s wind resources, Energ y Minister Ben Martins said in a statement.

“The agreement includes knowledge sharing and aims at research cooperation between the two parties in evaluating UCG technology,” Eskom said in a statement, “UCG is a coalto-synthesis gas technology that uses air or oxygen to gasify coal in the coal underground through a series of injection and extraction wells.” Eskom established its UCG technology development in 2002 and piloted the project for five years; results showed that the technology worked and was able to extract energy from complex, poor quality coal resources. The next step is to improve the quality of the gas, and Eskom and Sasol have a licensing agreement with Canadian technology partner Ergo Exergy Technologies for this role. “Eskom is proud of its role as a global leader in this technology, which we believe has huge potential to produce economic, social and environmental returns,” said Eskom’s sustainability division group executive, Steve Lennon. www.reimag.co.za

Coal is an essential part of the national and global energy mix, and UCG has the potential to provide opportunities in terms of mining; it may more than double South Africa’s current coal reserves, according to Eskom.

By providing accurate, verified information on South Africa’s wind resources, the map will also “serve as an all-important tool in enabling developers to fast-track their own efforts in developing wind farm projects,” Martins said. The map, generated from the Wind Atlas for South Africa project, currently covers the Western Cape and parts of the Eastern and Northern Cape provinces. It includes information, such as surface terrain effects that determine local wind climates, and estimates of wind speed and capacity, to help prospective wind farm developers identify highpotential zones. Dube TradePort’s aerotropolis is a green development that is a flagship for sustainable development in Africa and beyond. Situated on a 2 040-hectare site, Dube TradePor t is comm it ted to promot ing sustainable development through minimising and preventing environmental impacts, and

It is c u r rent ly r unn ing in it iat ives to minimise and mitigate greenhouse gases and synthetic pollutants, protect the ecosystem, run sustainable water and waste management systems, provide food security and boost the green economy. Well-known cell phone giant, Vodacom, recently unveiled the largest array of solar panels on a building in Africa. The solar panels on their Century City building in Cape Town is made up of 2127 solar panels, and is expected to generate power equivalent to charging more than 70 million cell phones a year, roughly 75% of all the electricity required by the building during peak times. “Through this particular project Vodacom aims to demonstrate that business can take the lead in promoting renewable-energy solutions and stimulate the green economy,” their chief officer of corporate affairs said during the unveiling in Cape Town this year. With great leaps and bounds, the projects that are underway in South Africa highlight the investment benefits of renewable energy in South Africa and how commercially viable this option is for businesses in all sectors. The project undertaken by Vodacom is set to save up to R1 million a year and in the current tough economy with rising costs, who doesn’t want to save money? Just as compelling are the economic and social benefits in local communities that the renewable energy projects will provide, through jobs and development.

RESOURCES Eskom September 2013 SA Real Estate Investor

PROPERTY PROFESSOR ACHIEVING SOCIAL AND ECONOMIC RETURNS IN THE SOUTH AFRICAN PROPERTY MARKET

PROFESSOR FRANÇOIS VIRULY François Viruly is a property economist with over twenty years’ experience in the analysis of the South African property market. Professor Viruly lectures in Urban Economics, Property Development and Portfolio Management at UCT in the School of Construction Economics and Management.

ities and property developers across the globe have become acutely aware that socially sustainable building projects provide attractive financial returns. For practitioners in the built environment it means supporting projects that are based on appropriate social, economic and environmental benchmarks. Moreover it means finding an appropriate balance between private and public sector interests. For South African property investors the steep rise in building operating costs continues to place negative pressures on net operating incomes and returns. This has also increased the desire to seek construction methods and property management approaches that improve operating cost efficiencies. In a typical commercial building some 50% of operating costs is attributable to rates and taxes and other utility costs such as electricity and water. Moreover some 80% of the carbon emissions created by a building occur during the operating life of a building. Until recently investors have tended to pass operating cost increases onto tenants. But tenants have become reluctant to absorb such costs and related increases. It has also not become uncommon for tenants to sign “green leases” that require property owners to meet clearly defined operating efficiencies. To meet such changing tenant requirements, South African property investment funds have been undertaking renovation projects that have seen retrofitting of buildings and significant increases in electricity efficiencies of between 30% and 40%. For the developer, undertaking a property development with a significant green rating requires finding an appropriate balance between higher development costs and expected investor returns. But achieving green-related efficiencies is not limited to the development phase of a property. Most of the efficiencies are generated by the investor’s ability to manage the property according to appropriate green benchmarks. Yet green buildings may incorporate levels of technology that can only be implemented with an appropriate level of expertise. The property developer must therefore decide on a level of green technology that is appropriate for the intended usage of the building. Thus while a certain technology could be appropriate for a commercial building it may not reflect the needs of a public building such as a school.

Households have increasingly become aware of the benefits that can be secured through sustainable housing developments. But households, unlike corporate users, usually do not have the budgets to invest in green technologies. Households, therefore, rely on city authorities to adopt programmes that promote sustainable environmental technologies at a city. This may include water recycling technologies, efficient public transport systems, appropriate town planning regulations and building codes. Planning policies can play a role in encouraging “brown field “developments rather than “green field” developments which are based on previously undeveloped land. The promotion of mixed use developments also improve the interaction that communities experience between home, work and play. The development of efficient public transport systems will also influence a household’s location decisions. Cities that place an emphasis on sustainability and green developments also have an opportunity to improve the quality of life of lower income groups. This is achieved through the development of parks, the delivery of public facilities, improving accessibility and affordable housing at high densities. It is important that programmes which encourage sustainability should be based on interdisciplinary collaborations that find an appropriate balance between the environment and meeting the economic needs of communities in different spheres of the built environment. Such initiatives should also be based on an appropriate balance between public and private sector interests.

RESOURCES Viruly Consulting

For answers from the Prof email your questions to angie@realemedia.co.za 56

September 2013 SA Real Estate Investor

www.reimag.co.za

June15 Brand Movement 071303

WE HAVE WHAT IT TAKES TO GIVE BACK. R90 million spent on 2 schools in 3 years.

It takes a village to bring up a child. It takes an enlightened company to join hands with a nation thirsting for quality education and build a school, Meetse-A-Bophelo in Mamelodi, designed to improve the performance of children keen to learn. As part of its school building project, ArcelorMittal South Africa is spending million of rands providing new technologically advanced infrastructure. The second school, Nelson Mandela Primary, was handed over to the people of Mthatha in July 2013. This is yet more evidence that we have what it takes to give back. We are ArcelorMittal South Africa.

transforming tomorrow Go to www.arcelormittal.com/southafrica to find out more.

Proﬁt from Australian Property Discover the secret to investing wisely

Looking to diversify your funds somewhere where you’ll be able to realise attractive capital growth and rental yields? Look no further. With Australia’s thriving economy and taxation benefits, there’s no better place to invest. Why Australia is your best choice for sound investments Australia offers profitable opportunities for property investors:

Stable real estate prices Well-established legal and property buying system Signiﬁcant tax incentives A strong currency and low interest rates Housing shortages and high property prices have resulted in a high rental demand Population growth and rising incomes means that demand for housing outpaces supply, causing prices to rise

Diversify your funds safely & easily with PR Australian Properties If you are serious about making money in property investment, talk to the experts! Rooted in on-going research, our advice cultivates sound investments and gives life to your ambitions. Through expert property management and investment property solutions, we will identify which areas will give you the most proﬁtable returns over time, and source the best projects for those looking to put their funds in a safe, stable environment.

Helping families buy Australian property at the RIGHT TIME, in the RIGHT PLACE, for the RIGHT REASONS To ﬁnd out more about how we can help you build a proﬁtable portfolio, email troy@praustralianproperties.com to set up a personal consultation, or visit www.praustralianproperties.com

REI Offshore

New Offices In Kenya

The Figures For Botswana Are In

Europe’s Retail Markets

Responding to growing investment on the African continent, leading African professional property services provider Broll opened its new Kenya off ices in Nairobi in August. Broll Kenya will provide property services to support demand in East Africa. Broll’s new office in Kenya answers the growing needs and opportunities in the region, reports Malcolm Horne, Group CEO of Broll. “Broll has been doing business in Kenya for some time now from its South African headquarters with its international partner CBRE,” explains Horne. “As the economic hub of East Africa, with sound macroeconomic and political policy in place, Kenya is attracting multinational companies. Nairobi is proving increasingly popular for corporate head offices on the continent and in the region.”

According to the IPD Botswana Annual Property Consultative Index, the total return for all property in Botswana was 17.9% for the year to December 2012, compared with 20.9% for 2011. This figure represents the un-geared total return to directly held standing property investments from one open market valuation to the next.

An unprecedented 11.9 million m² of shopping centre space is currently under construction in Europe, representing a 50% increase year-onyear (7.2 million m² in 2012), according to the latest research from global property advisor CBRE. Shopping centre development activity is largely concentrated in emerging markets, with a large proportion (74%) taking place in Eastern Europe. Similar to last year, Turkey is forecast to remain the most active market with around 3.7 million m² of shopping centre space under construction. Istanbul will be the most active development market in the coming years with 37 centres currently under construction, including A xis Eyüp AV M with a Gross Leasable Area (GLA) of 150 000 m², and Yeni İstanbul (GLA of 137 684 m²).

The return on Botswana property comprises 11.0% income return coupled with 6.3% capital growth over the year. The underlying rental growth of 8.6% outstripped Botswana’s headline inflation rate of 7.4%, underpinning both the capital growth and income return. Industrial property outperformed other sectors with a total return of 28.4%, closely followed by residential at 24.4%.

Valuable Input

James Ehlers, MD, Atterbury Property Developments

Mike Smuts, Director, Smuts & Taylor

Stan Garrun, Executive Director, IPD

“Developing a mall in the heart of the fastest growing urban node in Africa created the prospect for an exciting modern landmark. Mall of Africa’s sheer scale, distinctive design, exceptional location and top-notch retail mix puts it at the forefront.”

“The most effective way to find financial security and peace of mind is to invest some of your wealth in a stable economy with a strong currency, such as the UK.”

“Now the Botswana property sector can provide local and global property markets with the comparative, precise and timely data they increasingly require.”

www.reimag.co.za

Neville Moss, Head of EMEA Retail Research, CBRE “The rapid growth of new shopping centre development in emerging international markets is attributed to a growing middle class, the urbanisation of large cities and consumer demand for better quality retail.”

Jay Padayatchi, Director, Meago Asset Managers “JSE’s offshore property players are now more attractive than local counters given the potential for further rand weakness.”

September 2013 SA Real Estate Investor

LONDON

Green London

BY MIKE SMUTS

Invest in the future of eco-housing

ities have a central role to play in mitigating climate change. They consume 75 per cent of the world’s energy and produce 80 per cent of its greenhouse gas emissions.

each tree, in terms of aesthetic value, pollution and rainfall management at £8,000 - meaning the total value of London’s trees is more than £4 billion.

It may therefore come as a surprise to many to learn that London is one of the greenest cities in the world. Viewed from the air, more than half of the area is green or blue – amazing for one of the world’s major cities. Towering glass skyscrapers coexist with allotments, rivers, beautiful parks, gardens and tree-lined streets.

And London is also relatively “green” in the energy efficient sense as well, with Londoners being responsible for just 8 per cent of the UK’s total emissions (equivalent to an estimated 44 million tons of CO2 in 2006).

These precious lungs of greenery, all contribute to the capital’s ‘urban forest’ – with London boasting six million trees. One recent study put the value of

The Mayor of London, Boris Johnson, has always been a staunch supporter of a greener London, often seen cycling to work on the London Cycle Network (LCN), comprising over a thousand miles of cycle routes.

He has repeatedly stated that he wants London to be the ‘best big city in the world and to be recognised as a world leader in improving the environment locally and globally, by tackling climate change, reducing pollution, developing a low carbon economy, consuming fewer resources and using resources more effectively. Public transport initiatives, such as the London Cycle Network plays a mayor part in these green goals. Per capita, Londoners already have a far smaller carbon footprint than the UK average because of the high usage of public transport and the density of development. By this September, two London bus routes – the 24 and the 11 – will be serviced entirely by Mayor Boris Johnson’s new iconic, eco-friendly Route master-inspired buses. The New Bus for London is the greenest diesel electric hybrid bus in the world, and will reduce CO2 emissions in the capital by around 20 600 tons a year when all of the 600-strong fleet is in use in 2016. The buses are just one part of the Mayor’s plans to make London a greener and cleaner place to live, the successful “Boris Bikes” scheme being another such initiative. Now, 14% of commuters into central London cycle to work, compared to just one per cent in the 1970s, and car ownership is lower in the capital than anywhere else in the country.

Green house Another key element in making London a world leader in tackling climate change is the issue 60

September 2013 SA Real Estate Investor

www.reimag.co.za

OFFSHORE KEY DESIGN CONSIDERATIONS INCLUDE

of housing and new developments. Housing contributes 38 per cent of the total CO2 emitted from London each year – over half of it from heating during the cold winter months.

heating, mechanical ventilation and cooling and the specifying energy efficient lighting and appliances.

Clean: supplying energy efficiently

The revised “London Plan” (as highlighted in the January 2013 issue of REIM) sets out policies governing new development in London.

Developers second priority is supplying energy more efficiently through decentralised energy generation, through small energy sources generating electricity and heat near the point of use.

Maximizing the controlled use of passive solar energy in the layout and orientation of buildings and design of windows.

Maximizing the use of passive ventilation.

The London Plan expects all major new developments to connect into existing heating and cooling networks, or provide site-wide CHP (Combined Heat and Power) networks where feasible, unless site specific solutions combining low carbon or renewable energy generation achieve a greater reduction in CO2 emissions.

Using energy-efficient window glazing and frames.

Increasing air tightness in the building envelope.

Making appropriate use of thermal mass and insulation; and

Green: using renewable energy

Installing energy-efficient lighting and appliances.

At the heart of the Plan are policies ensuring London’s new buildings are both ready for the impacts of climate change and can reduce their contribution to London’s overall CO2 emissions, conserve water, mitigate flooding and safeguard biodiversity. Through this initiative, and in conjunction with the Code for Sustainable Homes, central government and the London Mayor have committed to making all new housing zero carbon by 2016. A zero carbon home is one whose net carbon dioxide emissions, taking account of emissions associated with all energy use, is equal to zero or negative across the year. To achieve this, new developments will need to be designed and constructed to make the fullest contribution to climate change mitigation and adaptation. This means minimising overheating, reducing flood risk, improving water efficiency and protecting and enhancing green infrastructure, as well as taking steps to reduce carbon dioxide and other greenhouse gas emissions. The London Plan states that all new development proposals should make the fullest contribution to minimising carbon dioxide emissions in accordance with the following energy hierarchy: 1. Be lean: use less energy in construction and operation by incorporating sustainable design and construction measures, and by specifying energy efficient lighting and appliances; using less energy. 2. Be clean: supply energy efficiently by prioritising decentralised energy generation. 3. Be green: use renewable energy.

Lean: using less energy Before decentralised or renewable energy technologies are considered, the first priority for new developments is to reduce energy consumption. This means making the building fabric more efficient to minimise energy loss, taking steps to reduce the need for electric lighting, www.reimag.co.za

Where feasible, developers need to incorporate on-site renewable energy generation to reduce carbon dioxide emissions. Renewable energy generation methods include solar thermal systems, biomass-fuelled heating and/or power, ground source heating and cooling, air source heat pumps, photovoltaic, wind power, and renewable energy from waste.

“London is one of the greenest cities in the world. Viewed from the air, more than half of the area is green or blue” Greening existing homes It’s also easier than ever for Londoners to make their existing homes more eco and cost-friendly thanks to the government’s latest green initiative, the Green Deal. Put simply, the Green Deal, launched in January this year, enables homeowners to take out loans for specific improvements to reduce energy bills, such as replacing an inefficient boiler, insulating the loft or installing double glazing. The government and Mayor’s ambition is to retrofit over half of London’s three million homes by 2025. And for Londoners, taking steps to make their homes more eco-friendly can have significant financial benefits. Government figures show ecoimprovements can raise the value of property by as much as £25 000 in some areas. With the rising costs of gas and electricity in the UK, savvy buyers and tenants now pay careful attention to the information contained in the

Energy Performance Certificates (EPCs) which, since October 2008, are a legal requirement whenever a property is built, sold or rented. An Energy Performance Certificate (EPC) is a document that shows how good – or bad – the energy efficiency of a property is and it is valid for 10 years. EPCs look similar to the energy labels found on domestic appliances such as fridges and washing machines. They grade a property’s energy efficiency from A to G, with A being the highest rating. Estimated running costs for heating, hot water and lighting may also be shown on the certificate, along with a list of recommended energy-saving improvements. New build properties generally benefit from a high rating, thanks to the government’s regulations we discussed above, which are pushing developers to build to increasingly efficient environmental standards. Second-hand property is likely to receive a D or E rating. So while housing and construction undoubtedly play a pivotal role in any “Eco Efficient” global city, London’s visionary plans for public transportation, better urban infill and smart growth, and green social design – is showing that it’s not just buildings that make London one of fastest-developing green cities in the world.

RESOURCES

Smuts & Taylor

September 2013 SA Real Estate Investor

USA

BY SCOTT PICKEN bulbs, depending on the level of investment made. Backers of a new play might get tickets to the opening; more generous patrons might be invited to a champagne reception. This category could raise more than $700 million in 2013. The next biggest category is the donation market. This overlaps with the reward market: many artistic endeavors that use reward crowdfunding also encourage funders to contribute very small amounts of money, typically less than $25, without expectation of a return - except for the knowledge of having contributed to a worthy cause. Donors often receive a thank you in a program or liner notes. Traditional charities usually request donations to support their overall mission, and then decide for themselves how to allocate the funds. Crowdfunding portals can raise funds for individual projects, meaning donors can give to the project of their choice. This market may be worth more than $500 million in 2013.

The property revolution has started

eloitteâ&#x20AC;&#x2122;s predicts that crowdfunding will be one of the 10 most important trends to watch in 2013. They predict that crowdfunding portals will raise $3 billion in 2013, double the $1.5 billion raised in 2011. Crowdfunding portals are websites that enable large numbers of indiv idua ls to financially support a project or company, with each backer contributing just a small percentage (generally less than one percent) of the total funding. A typical crowdfunded project has thousands of backers. Crowdfundingâ&#x20AC;&#x2122;s growth matters for two reasons. First, some crowdfunded projects raise funds for new technological devices and media content such as computer games. Second, the portals themselves are likely to become a new type of Internet portal. Media coverage of crowdfunding tends to focus on its role as an alternative to traditional venture capital (VC); however, there is much more to the concept. In fact, there are four

September 2013 SA Real Estate Investor

distinct categories of crowdfunding that vary by type of portal and capital raised.

Categories of crowdfunding portals Consumer lending is the largest category. Financial institutions and payday lending companies have for many years lent small amounts of money at relatively high interest rates to consumers with bad credit histories. Now, these services are available online through crowdfunding. In the five years between 2008 and 2012, crowdfunding portals likely lent more than $1.5 billion. In 2013 these loans are could to exceed $1.4 billion, up more than 50 percent from 2012. Reward-based is the second largest category of portal. Individuals go to a website and support a specific project in exchange for a reward. For example, those assisting with the development of a computer game may get a copy upon completion. Those investing more may receive a basket of games and a T-shirt. Backers of a new kind of remote-controlled light bulb might receive a quantity of light

Venture capital, which gets the most media attention, is actually the smallest category. Traditionally, early stage startup companies are initially funded from credit cards and savings, and then reach out to friends and family. This usually covers the first $250 000. Beyond that point startups look for money from individuals (angels) or established venture capitalists, with the f irst seed round raising perhaps $50 0 0 0 0. Ex pected changes in Nor th American securities regulation could make it possible for companies to raise money via a crowdfunding portal, with contributors receiving an equity stake in the company. This category is the wild card for 2013. It could raise more than a billion dollars if the rules change, but less than $50 million if they donâ&#x20AC;&#x2122;t. Crowdfunding generally involves small c ont r ibut ion s at t he i nd iv idu a l le v e l . A lt hough t he top pledge pack ages can be more t han $10 0 0 0, on average t he individual contribution is likely less than a thousand dollars in almost every category. The funds raised for a particular project or investment tend to be in the thousands or tens of thousands of dollars, although on rare occasions they can be in the millions. For example, on one of the better known crowdfunded reward sites only 17 projects raised more than a million dollars and only two raised more than $5 million. www.reimag.co.za

BOOK NOW! www.usabuyerstrip.co.za

USA the really wealthy and the cars were built bespokely. Henry Ford came along, created mass production and said, “You can have any colour you like as long as it was black.” The Model T Ford revolutionised the transportation industry and made transportation available to the middle class. Wealth Migrate is doing exactly the same to international, commercial and local property, allowing everyone to create global wealth through property and it will revolutionise property forever!

Still, across tens of thousands of projects and investments, the total funding can really add up. In the past five years, the 30 largest lending portals raised more than $1.5 billion. The largest reward platforms collected nearly half a billion dollars cumulatively. Donation sites raised hundreds of millions of dollars. Venture capital portals raised just tens of millions of dollars, but that number is expected to rise dramatically in the near future. In aggregate, crowdfunding portals are already a multi-billion dollar industry, growing at more than 50 percent a year.

Donald Trump joined the industry in 2013 as he funded a crowd-sourced portal called Fund Anything. This shows the maturity of the market and how quickly the industry has adapted. In 2013 the legislation in the USA has now changed and allows investors to have a equity stake. This is perfect for property and allows Wealth Migrate to provide the first International Crowd Funded Property portal. Basically the analogy is the same as motor cars. Before Henry Ford, cars were only for

Wealth Migrate’s mission is to provide a global, self-service, crowdfunding property solution, which takes advantage of local propert y markets, through best of breed partners and collective buying power. This will be optimised by a Global IT Platform, providing transparency and eff iciency of property markets! Basically a simple solution to buy global property aggressively with like-minded sophisticated investors and create global wealth.

RESOURCES

IPS Invest

CAPE TOWN Ground floor, Liesbeek House, River Lane, Mowbray PO Box 23644, Claremont, 7735 Tel: +27 21 680 5272 | Fax: +27 86 670 6490 Official South African marketing agent for LEPTOS ESTATES | www.LeptosEstates.com

Contact: Jenny Ellinas | +27 83 448 8734 | jenny@cypriotrealty.com | www.cypriotrealty.com 64

September 2013 SA Real Estate Investor

LESSONS

BY ANGIE REDMOND

Creating YOUR wealth It all starts with YOU

hen you think of the word ‘responsibilit y’ what comes to m i nd? Most p eople t h i n k of getting a job, saving money, buying a car, then a house, followed by marriage and a white picket fence. Guess what: you just made yourself poor. Yes, I said it, poor, and why you may ask? Well, easy: you followed the path of no resistance and responsibility.

The biggest obstacle to attaining real wealth is actually YOU. By living your life in a manner not conducive to creating wealth, you have failed before you start, but you can change that, it all comes down to how you think about your life. The first thing you need to think of is debt as a disease. There are different types of debt and the type of debt you want is debt that is actually earning you money, not costing you your salary every month. If you are spending your monthly salary paying off accounts, car loans and clothing accounts, you have made yourself poor. Change your mindset, change the way you see those items. That new car you want? It’s an anchor and it’s going to keep you from creating real wealth. That fancy new phone or gadget, it’s going to keep you working 9-5 till you retire and eke out an existence. You need to start with the way you view luxury goods and money, because credit is not money, 66

September 2013 SA Real Estate Investor

it’s a trap to keep you paying your money to someone else for the rest of your life. The best way to avoid it is to think of the good type of debt, the type you want. Debt that earns you money. What does that make you think of? Property is what you should be thinking. Yes, you take out a loan from the bank and that’s debt, but if you buy a property and let it out, then it’s debt that’s earning you money. And once you have paid that off, you are now earning two incomes. Would an expensive car earn you an income? Changing your attitude towards money goes further than just the way you perceive debt; it’s also about the money itself. What is money? It’s a piece of paper with a picture on it, any power it has over you, you gave it. Stressing and thinking about money all the time is exhausting. Just don’t do it, fortunes can be lost and gained in a day and more than one mogul has lost it all, only to get it back again. It’s very important that you learn to respect money and respect what it can do for you, without allowing it to take over your life. Investing in property is not just for the rich and educated, anyone can invest in property. A ll it takes is the right knowledge, and knowledge in this day and age is free, with the

Internet at your fingertips, you control your future. If you want to change your life through wealth creation then get researching, f ind out who the experts are and speak to them. A lot of the property professionals started off right where you are today, and most of them are more than willing to help others achieve their goals. So start researching today, speak to people who will help you on the right path, make sure they deserve your trust, and start planning your financial freedom. How do wealthy people get even wealthier? They know and understand how to use money, they surround themselves with people who know how to play the money game. Your capital is a seed; you can grow that capital into a forest by ruling your finances. Don’t just settle for ordinary, although it’s safe and comfortable. You can achieve more and that brings me to my last point: it’s about how you see yourself. Most of the people who made their dreams come true had to battle huge adversity and they didn’t just sit in the corner and think ‘I can’t do this, I want to, but I don’t think I will succeed.’ If they had, half the technology we have today would never have been invented. Believing you can do it and drive and determination are half the battle won. The way to wealth starts with you. www.reimag.co.za