Experts believe long-term bets in the troubled municipality could pay off.
Nelson Mandela Bridge at night with Johannesburg city skyline in Gauteng. Picture: iStock
Real estate investors are still betting on the City of Johannesburg (CoJ), with some describing it as a “long-term smart money” play. This is despite an array of historic challenges facing the municipality, which have made the economic hub a hard sell.
While the city’s current shortfalls remain a headache, Andrew Brooking, founding director of Java Capital, says investors are looking much further ahead for value.
“We’re in front of experienced, long-term investors all the time and what comes up often is that the long-term smart money would probably be loading up on Johannesburg right now,” says Brooking.
“In the long run, to be buying Joburg property now and really anytime, is a value proposition that over time will work out.
“I can see the city needs to improve and I think it will improve because it’s indispensable to South Africa as a whole.”
Why investors still believe in Joburg
The city has been under intense scrutiny for several years as its financial position, political instability, governance shortcomings and service delivery failures have raised concerns about its ability to remain an attractive place to live, work and invest.
Joburg’s debt crisis is among its most pressing challenges and has put the metro at odds with Finance Minister Enoch Godongwana.
Its electricity debt was, however, recently resolved through a deal brokered by Minister of Electricity and Energy Kgosientsho Ramokgopa.
Experts have previously warned that prolonged instability, weak service delivery, financial uncertainty and the threat of disruptive protests over municipal wages could further undermine investor confidence.
Yet Standard Bank says the city remains too economically important to overlook.
Andrew Robinson, sector head of real estate at Standard Bank Corporate and Investment Banking (CIB), says the message from major property investors is clear: Johannesburg needs to succeed.
“I’m not a politician and I’m not going to answer for the politicians, but what I can tell you is that we were at one of the big listed Reits’ [real estate investment trusts] capital markets day last week and all the speakers there were adamant that we have to get Joburg right.
“The bottom line is that we have to get Joburg right. How it happens, I cannot comment on – but I think it’s clear, whether it’s the office sector, whether it’s logistics or residential, Joburg is still the hub and we have to get Joburg right,” says Robinson.
“It’s front of mind for real estate investors. How we get that right is a separate debate, but Joburg is fundamentally critical to the sector and we need to get it right.”
A broader investment opportunity
These comments came on Tuesday as Standard Bank and Java Capital announced a partnership designed to bring “innovative capital-raising, advisory, financing and co-investment solutions” together on an integrated platform.
The platform will initially focus on South Africa’s real estate, infrastructure and broader real asset sectors.
The partnership comes at a time when South Africa’s real estate market is starting to show encouraging signs of renewed activity, alongside evolving funding mechanisms and transactions.
Stabilising interest rates, improving sector balance sheets, narrowing Reit discounts and renewed merger and acquisition activity are supporting the recovery, while private capital and more flexible funding structures are playing an increasingly important role.
The partnership is intended to give real estate investors, developers, listed property companies and infrastructure-related businesses access to a broader range of capital solutions, including:
- Advisory-led capital raising
- Debt and equity origination
- Structured funding, and
- Selected co-investment opportunities.
According to Justin Bothner, head of investment banking South Africa at Standard Bank CIB, the changing market is forcing participants to rethink how real estate transactions are structured and delivered.
“As capital markets evolve, clients increasingly need partners who can combine strategic advice, execution certainty and access to capital,” he says.
“By combining Java Capital’s origination and advisory strengths with Standard Bank’s financing and execution capabilities, we can respond to these shifts and requirements in a much more integrated way.”
This article was republished from Moneyweb. Read the original here.
