Real Estate Investor Magazine South Africa September 2013 | Page 56

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. C 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 [email protected] 54 September 2013 SA Real Estate Investor www.reimag.co ?????