Refurbished and empty for the World Cup

Thousands of the more affluent people in South Africa eagerly refurbished, furnished and stocked (with bed linen, towels, cutlery and crockery) the investment townhouses that were supposedly going to make them a fortune.

Many of these townhouse owners had signed deals with a group called Classic Hospitality who in turn had signed a contract with MATCH, FIFA’s official booking agent.

The deal with Classic was one of many that cropped up in the past 18 months or so. Several property companies put out leaflets around the suburbs of Pretoria, Johannesburg, Cape Town and Durban aimed at seducing homeowners into renting their properties for the duration of the World Cup.

And the figures they were bandying about were spectacular: promises of making between $5k and $8k a day for the full duration of the event and that’s equivalent to between $150k and $240k for the month.

That’s pretty serious money.

The investors who had bought townhouses in Fourways, Sandton, Douglasdale and Lone Hill had similar dreams of making a fortune – and some of them invested upwards of R20k in making sure the townhouses were truly luxurious and deserved the Four Star rating that they needed to qualify for inclusion in Classic Hospitality’s rental programme.

Classic hoped to have 3 200 units available to visitors and also planned to turn the residential gated complexes into Hospitality Villages where thousands of foreigners could relax and enjoy first class accommodation in a safe environment for the full duration of the event.

Classic’s figures were not nearly as over-optimistic as those from estate agents and promised townhouse owners that they would make about R70k from the foreign bookings over the period.

That’s still a lot of money for a month’s accommodation.

The prices being offered by Classic Hospitality didn’t seem to be outrageous either: A homeowner stood to make R800 a day for a studio flat booked for the month or so while this would climb to R2 143,94 a day for a three-bedroomed apartment.

There’s no indication of how much money Classic stood to make because the figures quoted in its documents refer to the amount that the homeowner gets and not what is charged to the tenant.

Then, last week, MATCH cancelled its arrangement with Classic Hospitality who, in turn, cancelled its contracts with the respective townhouse owners, leaving them high and dry having incurred a number of expenses in getting their units up to standard.

According to Classic’s Keith Mohammed, the company stands to lose up to R10-million as a result of the cancellation of bookings by MATCH and he is adamant that the company will take legal action against FIFA’s booking agents. That’s an indication of what Classic believes it would have made out of the foreign visitors. R10-million in a month is a jolly lot of money.

Apparently the first guests were due to arrive on 9 June but these people have been re-booked into hotels that are also battling to get the occupancy levels up for the World Cup.

At one stage, booking agents in South Africa expected between 450 000 and 500 000 tourists to make the trip out here to watch their favourite teams. That was revised to about 400 000 several months ago and then that figure was again reduced to between 350 000 and 375 000.

At the same time there was a hopeless over-supply of available beds (in hotels, B&Bs, furnished townhouses and even entire homes). And, with any over-supply situation, prices drop and contracts are cancelled.

That’s the reality of doing business anywhere in the world – and that’s the reality of trying to make a quick buck when there is no real substance to back-up the investment.

I think that any investor who bought a townhouse with the goal of letting it out for the World Cup and making a financial killing over that period was nothing more than stupid.

In fact about a year ago I wrote a column pointing out the dangers of letting out a property that you own to someone you have never met without having a vast number of legal agreements in place and a large deposit in case things didn’t work out the way you wanted.

I don’t feel sorry for Classic Hospitality, for any of the homeowners who signed up for their service or for the investments that these individual homeowners made in improving or furnishing the properties in question.

The reason is simple: The World Cup lasts for about a month and then it’s all over. What happens to those investment properties once the World Cup ends? Do these properties stand empty? Does the owner try to let them out at a substantial rental to South Africans?

What was the investor’s plan after the World Cup came to an end?

My point really is that all property is a long-term investment and if you don’t have a plan, based on long-term projections then get out of the property market and invest in Vuvuzelas instead.

It seems to me that the investors who bought into Hospitality Villages in the hope of making R50k, R60k or R70k in a month had taken nothing more than a short-term view of the market and now the market has flipped around and squashed them instead.

In fact I intend to watch with interest the longer-term plan for all those B&Bs, townhouses, individual homes and even holiday homes that have been tarted-up for the World Cup.

How many of these will end up on the Auctioneer’s block?

At the moment occupancy levels at hotels for the duration of the World Cup are sitting at about 60%. The low levels are attributed to the high costs of getting to and from South Africa, the high prices being charged for accommodation and the amount of time people have to travel before they get here.

But the top hoteliers (who have been commenting regularly in the business press and on radio) have all said that their hotels are not being built for the World Cup. The decision to build a new hotel is based on being able to keep it occupied over a 20-year period, perhaps longer.

That’s the reality of property: you don’t make an investment unless you’re prepared to tie up your money (in stable rentals) for a minimum of six years, maybe even eight.

So those thousands of people who thought they’d get rich quick because foreigners (with foreign currency) would descend on our land and spend, spend, spend should have done some homework first.

And, they should probably have read my column (and many other similar ones) that warned them more than a year ago not to believe the predictions being made by estate agents and other purveyors of rental accommodation.

The warnings were given but not heeded – so take the punishment that’s now being meted out to you.

Because thousands of you simply did not have a long-term plan.

*Hartdegen writes a regular column for The content of his columns constitutes his personal opinion and doesn’t pretend to be facts or advice.

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