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Johannesburg turns a corner

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Just over a year ago, former New York City mayor Rudolph Giuliani was asked by Johannesburg’s mayor, Amos Masondo, how his city could become “world-class” in time for the World Cup in June 2010.

Giuliani’s proposed solution for South Africa’s business capital, one of the world’s most dangerous and crime-ridden cities, was to tackle its problems head-on. He suggested creating “safe havens,” essentially well-policed urban zones where investors, businesses and tourists expected to attend the sporting spectacle would be safe.

“All eyes are on South Africa,” Giuliani told local reporters in June 2006. “So you have to start with crime, and make it a safer place. If it is safe, then all of a sudden, everything constructive falls in place: more jobs, more investors, bigger corporations moving in, a thriving tourism industry and a booming economy.”

It’s been an enormous challenge, in part because post-apartheid Johannesburg has become a highly fragmented urban entity. Some northern suburbs, like Sandton, nearly replaced the city center in importance as many large banks and the stock exchange moved there several years ago.

Since receiving Giuliani’s advice, Johannesburg’s city fathers have had mixed results grappling with crime and rejuvenating their inner city. Crime figures are slightly down, yet remain stubbornly high compared to Western cities.

Despite this, Johannesburg’s real estate market has been on a tear. While hundreds of inner-city buildings remain empty or occupied by squatters, particularly economic refugees from Zimbabwe, tens of thousands of new residential units are under construction or renovation.

Old inner-city office buildings are being converted into condos and lofts by developers attracted by urban renewal tax incentives that come in the form of accelerated depreciation allowances to promote investment in building improvements.

Given the socioeconomic diversity of Johannesburg’s residents, the city’s real estate industry is remarkably varied. Gated luxury homes in the city’s northern suburbs draw multiple bidders, and so do two-room houses in former townships, which are reportedly the largest growth areas.

Even given vacancy rates and crime problems, demand at the lower end of the inner-city market is so strong that the average price for a home has risen in the last three years from about $5,000 to just over $21,000, according to the 2007 Trafalgar Inner City Report, an annual publication that offers a bird’s-eye view of the city’s changing property landscape.

Conversely, apartments and houses in Sandton and Rosebank have doubled in price over the past five years and average around $150,000 and $250,000, respectively.

In these exurbs, crime is also an issue, but it has been kept at bay by high-tech
security systems and gun-wielding private security guards who now outnumber local police.

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“Newly created suburbs on the city’s outskirts that have no link to apartheid are where growth is really being experienced. If you go into the city, you’ll find that many of the new apartments are vacant,” said Ronald Ennik, executive director of the Pam Golding Properties Group, one of South Africa’s largest real estate firms.

A lot of construction and policing activity has focused on rejuvenating the Central Business District and Braamfontein, an adjacent mixed-use neighborhood of office towers and residential buildings. Yet large stretches of the inner city remain undeveloped and derelict.

The focus on downtown is ongoing, but depending on whom you talk to, market watchers are both optimistic and pessimistic about its future. After a several-year hiatus, local newspapers report that cafes have re-opened outdoor seating areas, a vote of confidence in these still-rough areas. Some real estate experts said the area recalls New York’s Soho neighborhood when it was freewheeling and full of young people and artists.

Luxury apartments in high-rise buildings downtown with panoramic views are also available from around $150,000 for a 1,200- square-foot penthouse. This works out to about $125 per square foot.

The refurbishment of industrial buildings like the Turbine Hall and Brickfields is bearing fruit by bringing people back to the inner city.

And while sales have been steady, they have not been brisk.

“I think they [the city] misjudged it slightly in the inner city when it comes to the type of loft apartments they have been building, as they remain expensive for the majority of the population,” said Ennik.

Johannesburg’s commercial real estate market has also recently experienced an upsurge. For a number of years, the inner city shed businesses to northern suburbs, but today, some of the major banks and large companies are returning. On top of large office spaces, comparatively low rental prices and opportunities for long-term leases, the Central Business District, with its robust public transportation links, is becoming more convenient for the city’s changing middle class.

Altogether, about 10 million square feet of office space is under construction. According to the Colliers Global Real
Estate Review, the metro area has about 176 million square feet of commercial space, about the same amount as metro Boston. In the last year, the vacancy rate dropped slightly from 16.6 percent in the second quarter of 2006 to 16 percent this year.

While Johannesburg is considered the hub for international companies doing business in Africa, most of the leasing activity in the city is generated by domestic businesses. They have been aided by steady economic growth, which has averaged about 3 percent a year since the end of apartheid.

Giuliani’s insistence — that if Johannesburg is “safe,” then everything constructive will fall into place — may ring true if the city can create this environment.

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