High return for Johannesburg inner city apartments

A new index on the performance of property in the Johannesburg inner city has indicated that apartments there have delivered compound returns of 17% per annum, over the past eleven years.  Townhouses have also performed well, delivering returns of 12%.

Property specialists, Citiq, have launched The Citiq City Index based on relative price performance of the Johannesburg inner city apartment market and a selection of townhouse developments in the Johannesburg metropole from January 2000 to December 2011.

Citiq CEO Paul Lapham says the returns are on capital and that investors should factor in the rental income that would have been generated over and above this. “Even after the property crisis of 2008, townhouses have continued to show consistent price growth, with prices since 2009 growing by an average 4% per annum in nominal terms.

“Over the same period the inner city apartment market grew in price terms by 8% per annum, although with significant volatility from year to year,” Lapham said.

Lapham explains that an investment of R100 in a city apartment in 2000 would be worth R567 today. He says a comparable investment in a townhouse would today be worth R332. “Both markets did exceptionally well during this period, benefitting from the property boom that lasted until 2008,” Lapham added.

He has attributed the strong performance of the inner city market, albeit from a very low base, to continued regeneration of the city, supported by both private and public sector initiatives. Lapham says the introduction of urban development zone tax incentives also contributed to large scale private investment into the city. The Johannesburg Development Agency and the Johannesburg Social Housing Company have also made significant investments in infrastructure and housing in the area.

Citiq has been involved in the inner city and townhouse market since 2005 and owns and manages more than 3 000 apartments and townhouses in the city.  Head of Citiq’s analytics department, Razia Cleland, says the index is based on sectional title sales in the Johannesburg inner city and selected suburbs with high densities of townhouses like Honeydew Ridge, Winchester Hills, North Riding, Weltevreden Park and Randpark Ridge. The inner city comprises 20 suburbs and includes Yeoville, Berea, Braamfontein, Troyeville, Selby, Highlands North, Jeppestown and Joubert Park.

The index uses the average price per square metre to compare the two markets. Cleland says: “Using the square meterage of apartments provides a useful benchmark of what people should be paying for apartments, although we would urge people to be cautious to take into account the condition, location and type of apartment they are buying when using the index as a benchmark for their own purchase decisions.”

Lapham says the average price per square metre of property sales in the inner city apartment segment was roughly R2 800 in 2011. This was up significantly from R471/m² in 2000. He adds these returns do mask significant volatility with the inner city market having been adversely affected by the 2008 property crisis, only showing a recovery to 2007 levels as late as 2011.

He adds the historical price performance of both townhouses and the inner city apartment market have been a stable investment for homeowners, which together with rentals accrued have delivered inflation beating returns. Lapham says given the benefits of living close to the city and subsequent savings in transport costs, he believes the inner city apartment market will provide long-term growth prospects for investors and homeowners.


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