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EMAIL NEWSLETTER - SPRING 2011
As we rise to the song of birds and sight of new blossoms, we feel that spring is
in the air at last!

A short while ago we endured a cold spell that probably marked the end of a colder than usual winter. As a property developer faced with all the challenges resulting from the slowing down of the world economy, and the now reduced willingness of banks to extend credit to new homeowners, spring could not have come at a better time.

The joy of spring usually lets us all forget the sorrows of the cold winter months, and the retailers, property developers, and all other consumer related businesses look forward to longer days and the onset of the Spring Sales and Christmas Shopping rush!
The current property cycle is one of recovery, although the onset of tighter credit criteria and the lack of credit extension, due mainly to Basel 3 and other bank requirements, seem to be putting a damper on the post-recession recovery phase. We saw a decline in visitors to show houses/new projects over the winter period, with commercial & industrial buyers and prospective tenants going into a hibernation not seen during the past 10 years.

If I look at my property cycle diagram stuck to the top of my computer screen, it is clear that recovery in the property market will begin with a recovery in the residential property sector. For this reason, Renico Construction has positioned itself to take full advantage of the recovery by having eight residential developments (Protea Glen Estate, Clivia Crescent Estate, Watsonia, Strelitzia, Suikerbossie, Abbey, Portobello and Nottinghill) that are either being handed over this month, or will be completed over the next 7 to 12 month period.
It is still Renico Construction's business plan to develop affordable but well built and well positioned residential units in the R350 000 to R850 000 price range. Over the years, this approach has served us well, limiting risk, and securing a steady income-stream from the 810 sectional title units transferred and handed over in the past couple of years. With the current eight developments, a further 503 units will be completed in the next 12 months.  
On the residential front, we have seen a strong recovery in residential rental rates with a typical 2 bedroom, 1 bathroom unit, that used to be rented out for R2 950 per month twenty four months ago, now being let out in the region of R3 950 to R4 250 per month. The larger 2 bedroom, 2 bathroom apartments are renting out at R4 850 on average, resulting in a net return of 9.84% on the R475 000 purchase price! Investors who bought 2 bedroom, 1 bathroom units from us 2 years ago at R380 000 are achieving an excellent 11.01% net return on investment, and can be very proud of the additional 12% to 14% capital growth achieved.
It remains my opinion that the affordable, low maintenance, well positioned residential developments are here to stay, and might be the saving grace for buyers and investors in years to come, considering all the uncertainty and negativity.
On the Commercial & Industrial front, with specific reference to Commercial developments (Offices & Retail) we have seen the market stagnate. This has caused very few, if any, offices to be developed for small to medium businesses, and no retail space coming on stream, due mainly to the onset of the Mega-Malls!

On the retail front, the dynamics have changed with the larger regional centres or Mega-Malls, as they are now being termed, taking all the lime light. The smaller second and third tier shopping and communal centres are only there to serve the fast food outlets, local Checkers/Spar supermarkets, estate agencies and other small service industries specific to the area. They are also the first shops that you see vacant in tougher times.
On the Industrial front, we have seen a massive slowdown in the demand for industrial land, and industrial space. With the onset of the recession in 2008, a great deal of industrial space was either already developed, or in the process of coming onto the market. Most, if not all developments, were new buildings, with very limited older warehouse space being re-developed. With the recession hitting our shores, the smaller businesses occupying the typical 280m² to 550m² warehouses with office component were immediately affected.

In some months, we saw as many of eight businesses faltering, and going out of business. We even saw the mighty national tenants negotiating rental holidays, and even a national tenant and listed company going into liquidation.

Pre-recession, newly serviced industrial land came onto the market at R750 per m² to R1250 per m² with a minimum of 70% bond finance on a vacant site being available from all banks.
  Today the same land retails at R350 per m² to R650 per m², with not one bank being able, or willing, to extend any mortgage on vacant commercial or industrial land.

This has resulted in the industrial market coming to an abrupt stop with the knock on effect of various developers being caught with existing tenants falling away daily and no new sales being done. At the peak, rentals achieved were R45 per m² to R65 per m², with 10% annual increases. With rentals sliding back, they now fall within the range of R28 per m² and R40 per m², with escalations of 8% perceived to be an excellent increase. 		 
As we are now in the post recession phase, with stability and recovery being observed in the residential sector, I am optimistic that the recovery in the commercial and industrial sectors will be forthcoming in the months ahead. Recovery will firstly be a case of stabilising, and then be evidenced in rate and rental growth.
As the North West region of Gauteng is very popular due to the mining activity in the region, upgraded national road networks and so forth, Renico Construction is busy with various industrial developments that are either the completion of previously commenced developments, or green field projects. At present Renico Construction is completing a new 9 664m² warehouse at its Rand Leases Industrial Estate development in Rand Leases, Roodepoort. Renico has also recently completed three 1 650m² Warehouses in its Mostyn Park Industrial Township, and will shortly commence with the development of a 22 510m² large scale warehouse building suitable for the larger warehouse/distribution type business that is consolidating office and warehouse functions.
Renico Construction has also secured three sites in the recently launched Lanseria Corporate Estate where a Warehouse Park is being planned. With the Lanseria node being developed and all the access roads being upgraded, I believe the node around Lanseria is set to grow and yield excellent returns in years to come. The N14 (previously R28) motorway, linking Krugersdorp to Pretoria, that is currently an un-tolled national motorway, should attract a lot of attention in the short to medium term when the burden of toll fees, soon to be implemented on the N1 highway, is felt.  
Tel 011 794 1177   Fax 011 794 1159   Email info@renicoconstruction.co.za