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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2019-03-08

It is all about location

Elizabeth Taylor's iconic Beverley Hills home has been on the market for 21 years. I know we have some exceptionally long-term listings in Zimbali Coastal Resort, where some homes have been on the market for five years, but 21 years must be exhausting for the listing agent!

The price of this Beverley Hills estate has now been slashed by US$4m to US$11,99m and is approximately 715 sqm in extent offering six bedrooms and seven bathrooms situated on an elevated cliffside position with views of Los Angeles and the ocean.

Elizabeth Taylor, who died in 2011, once called it the most beautiful home she had ever seen.

Celebrity residential homes attract a lot of media attention and recently it was reported that Michael Jackson's Neverland Ranch is on the market at almost 70% off it original list price of US$100m in 2015.

This is a Disney themed ranch of 2700 acres (1,092 hectares), which is now priced at a very reasonable US$31m. It was discounted to US$67m in 2017 from its original list price.

The main residence is described as "French Normandy-style" and measures 1,170 sqm. with selling features such as two guest houses, a lake, a 50-seat movie theatre, a tennis court, a lagoon style pool and a Disney-themed train station.

Jackson had bought this property for US$19,5m in 1987, but defaulted on a loan after financial hardships. He then entered into an ownership agreement with a private investment firm in 2008 for US$23m.

They then undertook major renovations in anticipation of a sale that never materialized. Local realtors have provided some insight into why the property has not sold.

These we typically know ourselves and it all comes down to the same wise advise regarding property investment. The property is located 210 km northeast of Los Angeles, which is outside of the acceptable location of high-end homes. It is all about location.

Although we all know the three golden rules of real estate, being Location, Location, Location, it seems that many people still seem to ignore this and get it wrong.

Even in Zimbali we have found this sage advise being ignored where a R20m home will be built on a R3m site, with the result that the home finds it hard to attract a buyer at pricing above what was paid to build the property.

As a general rule, the amount invested in the top structure on a vacant Erf should be approximately twice the value of the land. Once this ratio is breached you find that the risk of over-capitalization becomes real.

Zimbali beachfront homes are typically worth R30m with R10m being the value of the land. A R5m site should attract investment in top structure of approximately R10m.

Keep to this well-established rule of thumb and your investment will be safe. Ignore this rule and the result is a beautiful home built on the wrong site. Never develop a property with the attitude that you will never want or need to sell it. Every property is eventually sold.