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The main developer of an “urban rejuvenation” district hyped by media and officials as a model for gentrifying inner-city neighbourhoods has crashed and entered liquidation.
Propertuity and its various subsidiaries have been liquidated after suffering mounting losses at its flagship Maboneng development in Johannesburg’s Jeppestown and New Doornfontein suburbs.
The risk now is that scores of small investors and investors that have bought into the neighbourhood, incurring debt through bonds, may see their property values plummet.
A liquidation fire sale is scheduled to take place on April 15 and it remains to be seen if prices match the kind of money small individual buyers of Propertuity buildings have paid.
Average prices in the neighbourhood have been more than R10 000 per square metre, even for shoebox apartments measuring 30m2.
The parent company of the group, Propertuity Development, was already placed in liquidation in October last year, along with four subsidiaries.
This set off a domino effect, knocking down subsidiaries that own many flagship developments in Maboneng.
Propertuity has sold R340 million in residential units in Maboneng since inception.
Urban Steyn, owner of two Propertuity buildings, was liquidated in February. It owns one of the most ambitious Propertuity developments – Hallmark House.
A total of 138 units in the building have been sold since 2017 for a combined R132 million. Propertuity still owns 70, which will be part of the liquidation sale.
The liquidations follow shareholders cutting their losses last year after having to constantly pour more money into the company, which simply could not break even, despite the hype.
Banking group RMH Property bought into Propertuity in 2016. It sunk R308 million into the company and ended up with a shareholding of 49.5%. It has now written off the whole investment to zero.
“The full impairment implies that RMH does not expect to realise any value from this asset,” said Brian Roberts, CEO of RMH Property.
RMH is now part of a consortium taking a new bet on a far more ambitious adjacent development, which will be driven by banks and major property groups.
“Propertuity has materially underperformed against expectations due to various factors, including overly optimistic asset selection and unrealistic valuation expectations, limited management capacity, excessive gearing and operational challenges,” the banking group said in its latest annual report.
Propertuity CEO Reanne van der Merwe echoed the sentiment.
All of the company’s property is for sale, he said.
WHAT WENT WRONG?
“Urban Steyn’s business has collapsed,” said Propertuity’s liquidator Fusi Rampoporo in an affidavit for Urban Steyn’s liquidation.
“Most of the group is insolvent ... Urban Steyn is yet another casualty in the wider group,” he said.
Propertuity’s collapse is being blamed on the “prevailing economic climate”, but also the fact that it is hard to sell the group’s buildings because “the properties are generally in a poor condition”.
Rentals have also been disappointing because the tenants have been more economically precarious than had been expected.
“In economic recessionary periods ... tenants/purchasers find it difficult to meet all of their monthly obligations to Urban Steyn,” said Rampoporo.
On the other hand, costs of managing buildings and providing security in an enclave within the Johannesburg city centre have escalated.
One of the risks if the buildings are not put under liquidation is “vagrants taking occupation of the immovable properties”.
Another concern is that “there may not be adequate security to preserve the integrity and value of the immovable properties”.
The concern is apparently that Propertuity’s buildings would be occupied by the city’s homeless.
The two properties that fall under Urban Steyn are Hallmark House and Market Up. They lose R1 million a month, according to Rampoporo.
There is now also a risk that the planned Hallmark Hotel and rooftop facilities of Hallmark will not be completed.
WHAT NOW FOR MABONENG?
The liquidation fire sale this month will see about 10 entire buildings and about 130 sectional title units and shop spaces in Maboneng go under the hammer.
Van der Merwe and RMH both deny that the sudden sale of all Propertuity’s properties will affect other owners’ property values.
“The sale of entire buildings for the purposes of further development should have a minimal impact on prices because the number of properties that Propertuity has in this asset class is not significant enough to materially affect this market,” Van der Merwe said.
“There is a misperception about the scale of Propertuity’s impact on Maboneng. It actually owns a very small percentage of properties in the precinct,” he said.
RMH likewise told City Press that Propertuity is “just a small part” of the precinct.
Far from being the work of plucky young entrepreneurs, much of Maboneng and the surrounding developments have involved the biggest names in South African property.
One investor in Propertuity projects was Steyn Bros Property Developments.
The Steyn referred to in the name is billionaire businessman Douw Steyn, who is famously building his own city north of Johannesburg called Steyn City.
Propertuity itself is tied to South Africa’s most famous billionaire recluse Jonathan Beare, who has immense property holdings all over the country and has most recently entered into a partnership with Patrice Motsepe to create African Rainbow Properties.
His Buffet Investment Services has been the main investor in Propertuity.
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