Case Study: Xaba and Seef Real Estate Company in South Africa

Xaba and Seef (X & S) is a real estate company based in Johannesburg, South Africa. It is currently exploring multiple strategic directions to expand the company operations and increase revenue and profits. To pursue various investment opportunities that would translate into projects, the company has developed various strategic directions to successfully invest in real estate. It identified 7 options for portfolio project management, these are investments in the following:

1. Purchasing land for future development - purchasing land in areas that have potential for future growth makes sense as the cost of the land tends to be substantially cheaper 10-20 years before it is turned into a developed suburban area. At an appropriate opportunity, that land can be improved to add value, or it can be rented out to create cash flow. Further, the land can be divided and parts of it can be sold for a profit. However, this option requires a long-term vision for future growth and development, and consequently there are risks associated with this strategic direction.

2. Town houses - building townhouse complexes in the suburbs is one of the best and most popular strategic directions for growth of real estate companies like X & S. These usually consist of multiple blocks of 10 - 30 units with single assigned parking. Most of the clients are young professionals or young families with 1 or 2 kids. These are easier to rent, sell and finance. Some include common play areas for kids, club houses and even swimming pools. Full time security personnel is required.

3. Medium multifamily properties - these usually consist of 30 to 60 single unit cluster homes in secure gated estates. Most of the clients that are interested in a quality life and view their homes as investments prefer buying single family homes. They realize that these are easier to rent, sell and finance while providing a good and secure residence for their family. An additional advantage for clients is more space, a small to medium yard, and multiple dedicated parking. Full time security personnel is required typically funded by levies paid by the residents.

4. Small scale apartments/flat buildings - usually consist of 10 to 50 units for clients to reside in. These are more popular among those who prefer urban areas with a busy social life. Clients are typically young professionals that are not married or married with no children. These properties can be more difficult to finance because they rely on commercial lending standards. For this investment option X & S must look for investment opportunities closer to densely populated areas, and the investor must provide parking.

5. Large scale apartment/flat complexes - these require the inclusion of lifestyle related spaces like swimming pools, a gym, tennis courts, club houses, concierge services etc. This is in addition to other attractions that lure people to choose the complex as a residence. Such a complex requires full time staff to manage the property, provide safety and security, and good customer service. These properties can be very expensive to purchase. However, this investment option provides steady revenue flow.

6. Large scale student apartment/flat complexes - these are built in close proximity to universities and colleges, catering for multiple sizes from single, double and dormitory sharing by students. These no longer just provide basic accommodation for students but also offer spaces and services to create a sense of community among students. Security is also an important component of these properties. Commercial standards of capital investment are also required to invest in these types of buildings.

7. Commercial investment - this is an investment for growth and diversity in a portfolio. The aim of this investment is to lease the property for business. Size, style and purpose vary. Clients could range from small business owners to large malls and mega office complexes. This investment option offers a consistent cash flow. However, occupancy would depend largely on the local economy and could prove risky. Further, investments are of higher magnitude and X & S is seriously considering this option after establishing steady growth in the residential market and improving their financial stability and growth.

PLEASE ASSIST IN ANSWERING THE QUESTION BELOW AND ALSO PROVIDE REFERENCE

(i) All new residential and commercial buildings are required to comply with a minimum of 4 stars certification, as prescribed by the Green Building Council of South Africa. This also applies to existing buildings that may be acquired by X & S. Explain how this will impact on X & S's portfolio selection strategy. (40 Marks)