Almost 20 years on: Why Zimbali Coastal Estate on the north coast of KwaZulu-Natal is the most succe
Andreas Wassenaar, Principal of Seeff Dolphin Coast, not only lives in Zimbali but has been actively involved with the estate since 1997. He and his stepfather developed and sold 68 homes within Zimbali between 1997 and 2003, and then Andreas was Sales and Marketing Director appointed by the master developer from 2004 to 2009, during which period just under R2 bn in property was traded. Since 2009 he has owned the Seeff Dolphin Coast licence and continues to work and sell within Zimbali. He outlines why Zimbali is the most successful large-scale residential development in the country. The lifecycle of Zimbali, since the initial land sales there in 1996, has had times of exponential returns (2004-2007) and times of flat returns (2008-2012). More recently, with the sale of the last sites, there has been a surge of demand for vacant land, which is starting to drive pricing on the resale of land and completed homes. We expect to see average price growth of vacant land in Zimbali exceeding 20% over the next 12 months. The returns that have been seen in Zimbali are best described in terms of what a beachfront site traded for in 1996 (R595,000 incl. vat) and what a similar site would trade for today in 2015 (R12.5m incl. vat). This represents a return of over 21 times over this 19-year period. The building costs have escalated from R2000/m2 to R20 000/m2 over the same time. Not all of this escalation is for the same materials, as higher-end materials are now typically being used. Given increasing demand for secure premium residential estates such as Zimbali, I believe pricing will increase at a similar rate over the next 20 years. The value of the residential homes within Zimbali is now approximately R5 bn (excluding the hotel and common amenities such as the golf course and clubhouses). Approximately R500 m is traded every year (around 10%). Many of these transactions involve Zimbali homeowners buying another property within the estate rather than selling and moving on. Most Zimbali homeowners take a long-term view and hope to own their properties there for an extended period. Zimbali can be regarded as the most successful large-scale residential development in the country because no other estate has demonstrated this type of trade over such an extended period of time. There are smaller estates with higher average values, but they cannot compete on the scale of buying and selling that Zimbali commands. Seven critical success factors have made Zimbali so desirable over two decades: 1. Its prime position along the coast, within easy reach of all main amenities, which is almost impossible or very difficult to duplicate. 2. A master developer with considerable financial backing to ensure that the cyclical nature of the property market can be endured during the extended period that it takes to develop and sell out such a large-scale residential project. At Zimbali the first vacant land was sold in 1996 and the last plot was sold in 2015, representing two decades of a development lifecycle. 3. Design integrity - the architectural guidelines implemented by the master developer and managed and enforced over an extended time period have resulted in high-quality homes and living spaces. 4. World-class amenities - golf course and clubhouse, 6 tennis courts, 2 squash courts, five-star gym, extensive walking and running trails, two large pool nodes with resident amenities, 3.5 km of pristine beachfront. 5. Five-star hotels and amenities: there are three operational hotels on the property, which continuously introduce people to the estate. 6. World-class management with a professional management structure reporting to a board. 7. The best security available within the gated community/residential estate category. Very few other estates have managed to get all of the above right for such an extended period of time. Major new infrastructural development within the surrounding area, such as the new airport, has also had an input in Zimabli's success. Over the past 5 years King Shaka International Airport has become a strategic catalyst for development along the entire KwaZulu-Natal north coast, including Zimbali. Large multinational companies such as Samsung have elected to set up manufacturing facilities within the Dube Trade Port precinct around the airport, and destinations such as Zimbali are now enjoying the demand from South Korean executives looking for accommodation. Given the proximity of the airport to Zimbali, it is a very convenient and quick commute to Johannesburg and the business hub of Sandton. An increasing number of Zimbali residents are taking advantage of this and choosing to make their primary residence in Zimbali and to commute to Johannesburg for 4 days of the week. Below is my considered view of the six stages of the development lifecycle of a typical estate, with an indication of how these apply to Zimbali. Stage 1: Greenfields development This is the new launch of land with limited infrastructure. Pricing has to be particularly competitive to convince investors that the overall development will be worth the extended period of time it typically takes for an estate to get to a point where it becomes an environment in which families want to live. The financial strength and profile of the development company is key to its success. Highly leveraged developments are best avoided as their chances of success are limited. For Zimbali this happened in 1996 with its launch and first land sales. Strategic areas were sold first and immediate infrastructure investment was undertaken by the developer, demonstrating the credentials to see the development through regardless of how long it took. Stage 2: Infrastructure and early adopters The first vacant land phases are sold and first homes built. Initial infrastructure goes in and the cash drain on the development company is huge. Management expertise and staffing is required by the developer and is also typically funded by the developer. Sub-developers become key clients to the master developer and are the catalyst to get the development going at this stage. Good deals have to be done with these sub-developers to ensure success. For Zimbali this was between 1996 and 1998. Stage 3: Early development - adolescence With consistent marketing and PR initiatives the development starts to gain traction and attract attention. General market acceptance and confidence grows. The first resales and reinvestment happens by existing homeowners. Phasing of land releases is critical during this development stage. The master developer has to balance the release of land with the building of the infrastructure. (Trying to run too fast too quickly in order to maximise short-term profit will spell disaster for the master developer and the overall scheme.) For Zimbali this happened from 1999 to 2003. Stage 4: Tipping point - broader market adoption Early successes gain momentum and this growing confidence in and appeal of the estate start to draw in a broader market of end-users. Pricing starts to escalate and move up the steeper part of the curve. The resale market starts to develop and is supported by the sale of new land. A critical pitfall to avoid at this stage is neglect of the resale market by the master developer. Without a vibrant and active resale market (second-hand sales) the first sales market (first-hand sales) are doomed. Master developers have to work closely with estate agents to ensure both new sales and resales are actively worked on. Master developers that have in-house sales teams that typically focus on first sales only are short-sighted and limit the growth potential of their own stock. During this stage the bulk of the vacant land is sold by the master developer. For Zimbali this happened between 2004 and 2007. Stage 5: Maturing of resale market and active trade in vacant land The momentum created in the prior stage now translates into an active resale market ,which now exceeds the market of first land sales by the master developer. At this stage the number of new homes under construction grows exponentially and the master developer has to control access by contractors, security, architectural development and guidelines and recreational amenities in a professional and efficient way. World-class management and administration skills are required to ensure momentum is maintained. Control is handed over from the master developer to the homeowners' association and a professional management team that is directly accountable to the homeowners is put in place. The constitution of the development may have to be amended to ensure it reflects the homeowners who have now grown in importance, and not the master developer who no longer has the largest vested interest in the development. Master developers who think they can hold onto control after selling out the bulk of their land holdings are in for a rude awakening at this stage, as homeowners flex their collective muscle and take control. The remaining vacant land is actively traded and price escalation is expected. For Zimbali this happened between 2008 and 2012. Stage 6: Scarcity phase - true value of all property becomes evident At this stage the estate is typically fully developed with all of its amenities in place and up and running. Its management structure is bedded down and daily operations are handled efficiently. The master developer is largely out of the picture and the homeowner representatives run the estate as a board of directors providing guidance to their appointed professional managers. The cumulative efforts of all the prior marketing initiatives ensure that the estate becomes a highly desirable living and investment destination. Scarcity of homes and vacant land starts to emerge. The scarcity begins with vacant land and pricing escalates exponentially - far in excess of average property price increases. This supports the pricing of existing homes - even older homes, which are now typically being bought essentially for their land value and extensively renovated. Those contractors specialising in renovations become exceptionally busy. Pricing within the estate takes a giant leap forward and the market matures to an extent where the number of buyers for any given type of property far exceeds the number of sellers. The early investors sit back and congratulate themselves on committing early, and the new buyers congratulate themselves on being able to eventually own property in a mature and desirable estate. Zimbali has been at this stage since 2012. The last site owned by the master developer is typically sold either in Stage 5 or 6. At Zimbali this happened in February 2015 when I sold the very last site owned by the master developer. This represented the end of a two-decade development lifecycle for the master developer and provides some insight into the realistic time it takes to fully complete a large-scale residential development. I was not actually aware that it was the last site, as several other sites were trading at the same time. It was fitting that I had the opportunity to conclude this very last vacant land transaction for the master developer, considering the depth of my involvement with Zimbali over the years. Contact Andreas Wassenaar, Principal - Seeff Dolphin Coast, on 082 837 9094, email andreasw@seeff.com. See also andreaswassenaar.blogspot.com.
