Johannesburg is home to a lot of old and dilapidated buildings, which pose risks to any who live, work or otherwise venture into them.
These fears were validated this past week, when a devastating fire hit the building of the Bank of Lisbon – also occupied by the Department of Local Government and Housing – which resulted in the deaths of three firefighters.
But beyond the dangers these run-down buildings pose to human life, failure to renovate these structures could lead to massive insurance losses, and lost investment opportunities for the city.
According to property data and research group, Lightstone, the Bank of Lisbon building was bought in 2005 for almost a tenth of its initial selling price. After the municipal valuations by the City of Johannesburg earlier this year, the value of the building was set at R13.3 million.
However, the group noted that the insurance replacement value was estimated at a mammoth R28.6 million.
“After a health and safety inspection it was found that the building was only 21% compliant,” the group said. “This could possibly have a severe effect on any potential insurance pay-out after the fire, adding to the wave of devastation.”
According to Lightstone, as early as 2005 talks have started to address urban decay and rejuvenate the CBD, and in 2015, former mayor Parks Tau allocated a total of R5 billion to project Kopanang in an effort to redevelop 21 buildings mostly tenanted by government departments.
Government departments have now been ordered to evacuate the Johannesburg CBD while a probe is underway which will determine whether buildings should be demolished or restored.
Lightsone said that leasing agents should take this move seriously as they may face government departments leaving their lease agreements earlier than initially agreed – though construction and development companies may benefit as the opportunity to redevelop and re-energise the city centre presents itself.
Big opportunity for property developers
The Johannesburg CBD is labelled as an Urban Development Zone and is particularly attractive to investors because of its tax incentives.
“Lightstone transfer data shows that when older buildings are bought and revamped, even on a minor scale, could easily be sold for two or three times their purchase amount after a refurbishment,” the group said.
One such example is 305 Fox Street. A recent Lighstone Commercial Property Report from Lightstone indicates the building was bought for R1 million in 2013. After the municipal value roll in 2017 it was valued at R2.8 million.
However after its refurbishment in the same year, it is now listed for R6,2 million.
The building now houses a coffee shop, restaurants and apartments proving a solid investment and social upliftment in the district.
“This is a prime example of how a refurbishment is a very lucrative investment in the long run,” Lightstone said.
As the details around the developments are continually being discussed, the group said that there is a great need for low cost housing, and earmarked these buildings as the potential solution.
“The current housing problem in South Africa attests to the urgent need to restore buildings and repurpose them as low-cost housing and other useful amenities.”