*** Soweto receives a major cash injection...

*** Why are townships prospering when the rest of the world is in the doldrums...?

*** Tap into the potential on your doorstep... and more...

From the desk of Aiden Sookdin

Dear Investment Academy reader,

Did you know that international markets are experiencing the worst housing slump in 15 years? But, here at home, some property sectors are actually thriving while former “white” suburbs are suffering.

Today, I want to let you in on how you can invest in township property and diversify your investment potential.

But, before I jump into this weeks issue, I want to let you in on a little secret. This year I really want to shake things up and get you involved in the Investment Academy. I want to create a platform for you to voice your views on what's happening with your newsletter.

So, if you want to participate, pop me a short e-mail to iacomment@fsp.co.za on how you think we can improve our service to you. I'll see what I can do to get the changes implemented.

Back to today's isssue...

The potential lurking in townships is a dead giveaway

People who live in South African townships, like Soweto, are now paying more than 20% more for their homes than they did in 2007.

And it’s a growing trend. First National Bank launched a groundbreaking property barometer that records the growth of township properties. It confirmed that SA’s township housing markets are, in general, in much better shape than their suburban neighbours.

House price inflation in the three major regions Gauteng, eThekwini and the Western Cape averaged 19.7% year-on-year growth in the third quarter of 2008. Traditional suburbs only experienced 3.3% growth over the same period as measured by FNB’s National House Price Index.

Townships in Durban recorded the strongest price growth with an estimated 40% inflation year-on-year for the third quarter. That’s much more than the 18.4% and 7.4% recorded for Gauteng and Western Cape townships respectively. 

But why are townships prospering when the rest of the world is in the doldrums?

Well, there are many reasons why townships are performing this well in the face of global recession. New developments and the growth prospects in these areas have been springing up everywhere, turning townships into more attractive places to live. Shopping centre developments, like the Maponya Mall in Soweto, and infrastructure upgrades are turning townships into commercial centres and residents are no longer trekking into city centres to spend their money.

An increase in black employment numbers and disposable income has resulted in a strong surge of first-time buyers in townships. “Black buyers” who migrated to “former white” suburbs over the past decade are returning to townships because of the negative situation in the affluent property market and the affordable cost of living in townships. Properties in townships are still much more affordable than traditional suburbs.

Added to this: In 1991, former president, F.W. de Klerk announced that he would scrap the basic laws underpinning the South African system of racial discrimination. Yet, apartheid was still entrenched over four decades leading up to this event. The effects of this major imbalance between whites and blacks can still be seen in towns and cities today.

Townships are usually situated quite far from the Central Business Districts on the outskirts of town. Unfortunately, this relic from the past hasn’t changed much in the South African landscape. But two positive aspects emerged from this negative scenario. The first is the boom in the tourism industry and, second, the availability of land for development in these areas.

Bars, restaurants, historical memorials, guest houses and entertainment facilities in the townships are frequented by tourists from all over the world. This once negative situation has changed from being a thorn in the side of the South African economy to being one of the most successful tourism industries in the country.

This brings money and exceptional development to the previously disadvantaged areas, increasing the popularity to international investors.

Soweto receives a major cash injection

When South Western Townships (Soweto) was established back in the 1950’s, as a dormitory for black mine workers in the pits and shafts around Johannesburg, no one expected it to turn into the thriving city it is today.

The Soweto Business Empowerment Zone is a multi-purpose business centre very close to completion. It’s situated on the Old Potchefstroom Road just before the Baragwaneth Hospital. The 34-hectare property will comprise of four blocks of business units to be let to Black Economic Empowerment (BEE) businesses or entities. There will also be 12 larger light industrial or retail stands and four blocks of high-density residential units.

“This area is going to act as an incubator for small and medium enterprises,” said Linda Vilikazi-Tselane, acting director of the Economic Development Unit. The need for this type of development in Soweto is huge since there are many small businesses and entrepreneurs who can establish and grow their enterprises here.

Just around the corner from this massive development is the Baragwaneth Taxi Rank. This gives visitors to the country a taste of the hustle and bustle experienced in these booming centres. It brings trade and much needed industry to the Economic Development Unit. The taxi rank is close to completing it’s third phase of development and offers excellent opportunity for rent to own investors.

So, if you’re worried about finding a good investment amidst the international market crisis, you no longer have to be. Look around for wonderful growth and property investments.

With 2010 set to bring in millions of international visitors, finding a property in Soweto, renovating it and selling it for a profit is definitely an option for the savvy investor.

Happy Investing!

Aiden Sookdin
For the Investment Academy