Johnny Rabie: LX Living close to sold out, more Lisbon projects beckon

Over the past four decades, Cape Town property icon Johnny Rabie has built a solid reputation in his hometown – culminating with the development of the 250ha Century City project. After being approached by his new Portuguese partner, Rabie is now applying skills learned in South Africa into the LX Living project in Lisbon. With 120 if the 150 units in the €90m development sold out, Rabie is now investigating two more projects in the European capital, whose praises he seems unable to sing highly enough. He was a guest on Personal Finance Live. – Alec Hogg

Johnny Rabie joins us now. Johnny, you saw a chance in Century City – 250 hectares. I remember last time we spoke – in fact I was in the UK at the time, you were saying that of the 1.4 million square meters in bulk, you’d already managed to develop a million square meters. So you still got quite a chunk to go at Century City.

Yes we acquired Century City in 2004 from Nedbank and since then we’ve developed up to one million square metres of bulk across all sectors. That includes retail, commercial residential etc. We’re very optimistic about Century City. It’s been an outstanding project.

So why are you now looking offshore.

I was contacted by GMG capital a Geneva-based management group. They look after some of the asset managers and they had an opportunity in Lisbon, Portugal and asked me if I would be interested in partnering with them. It really wasn’t on my horizon. I met the GMG guys in Lisbon at the end of last year. I got a very good feeling and fell in love with Portugal, certainly with Lisbon. and also there were reasons for that because the similarities between the way they operate in Portugal and the way we operate are very similar. Having a strong partner on the financial side – they manage substantial amounts of money, made me feel comfortable. They were looking for a partner that could do the work. We could conceptualise it, put it together, project manage, sell it and everything else in the development function. That’s really what attracted me and that’s when it all started. It’s been a wonderful journey. It’s ongoing with many exciting things to follow.

Just for South Africans to get a feel of this. Obviously it’s much smaller than Century City but is it modelled on that, including flats, a bit of retail and perhaps some commercial space in one building.

The concept across all our projects in South Africa is what we call “urbanism” which is a combination of Work, Live and Play. So you’re bringing together all those uses and a large extent of what we are doing in Portugal, Lisbon is that. This particular building is 151 apartments and 2,000 square meters of retail, so you have your coffee shops, your local office retail at the bottom and then the apartments above. Within the apartments are the spa’s, the gyms the swimming pools. What interested me dramatically about Lisbon was the position of the site. It’s in a prime spot in Lisbon, in a suburb position of the CBD district, which sits right on all the transportation routes and very accessible. It’s a prime site. That’s really what got us so excited as time has gone by. We have got more and more optimistic about Lisbon and certainly about Portugal.

Presumably you have been approached a number of times by people wanting to do deals with you internationally. Being based in Cape Town you get a stream of global visitors – tourists all the time. Why did you decide to do this one at this time in your life?

Good question. I think you know it was difficult to find global opportunities where we felt comfortable from a developmental perspective that we could do something similar to what we had done in South Africa. So this one offered the closest that I had seen and also at the same time offered a value proposition producing residential accommodation. We were also offering a guaranteed return for a period of two years. We started to get into the investment aspect of the project and what excited us about Portugal is that you borrow at 1.5-2% from the bank – that’s what the current interest rate is and you’re earning 6-7% on completion. Automatically you are in a positive situation from day one. What was important for us is we had looked at many developments across the globe, but this is a development in a prime part of Lisbon. It’s there. You can go knock on the door, it’s yours, you own it and we felt comfortable with that. It was very successful from our launches in Lisbon and those that we had in South Africa.

Johnny, we spoke a little earlier to Magnus Heystek and he was explaining about these golden visas that you can get via Mauritius, Cyprus, in the United States as well, where you have to invest R900,000 – I think it has gone up the EB5 visa, as they call it. Is there something similar in Portugal. Does that come into the calculations here with this development?

We looked at this development – not from the golden visa perspective. We said we’re now developing in Lisbon and are looking at it from a traditional property point of view. Yes there are opportunities in terms of the golden visa program which is a Portuguese program for residency, where there is an investment of €500,000 and that kick starts a five year process to qualify for your Portuguese passport. That wasn’t the main reason why we went to Portugal. We looked at it as a development in Lisbon that can offer value and offer something that we knew we could sell globally. That’s in fact what we’ve done. We’ve catered for countries including South Africa. We thought – because of our brands here and people who know us, not only are they buying an apartment but there was a guarantee of a return for the first two years. Knowing that we have been around for a long time – about 40 years and that we would be able to deliver. A lot of the properties are often offered through the estate agencies and that’s a big difference to somebody like ourselves who are going out there, doing the work, with a strong combination of partners. That’s really what drove us.

So the investment then – and you did say earlier that you can borrow money, where do you start? How much do you need to participate in this project called LX living.

I’m going to pass you onto my financial director. Malcolm Lobban, a qualified CA .

Malcolm, You heard the question? So answer please sir.

Thanks Alec. The short answer is that we’re in a position where the banks are happy to grant loans to South Africans up to 75% of the purchase price – at the rate that Johnny mentioned, 1.5 – 2%, so when we went to market in the beginning of May, our entry prices were just below €300,000 and if you take 25% of that – call it €75,000 multiplied by 16, that’s the sort of entry level. We’ve obviously made some great progress. An average unit is about €500,000-600,000, so your entry level is about 25% of that. Call it €150,000 at R16 to the euro. That’s the entry level that we’re talking about.

That’s just over R2m. Am I calculating correctly?

You are. Our clients are a mix of folks who’ve got money offshore and others looking to take money offshore for the first time. As you know there’s the discretionary allowance of R1m per annum and then there’s the investment allowance of R10m. So well within those limits, it offers the opportunity for people to have an offshore investment. And if they wish to, they can also look at the benefits of the visa.

While we’re talking to you, what are the returns that are being predicted? I don’t know if you even can predict returns. We were talking to Orbvest earlier, they’ve got a 10 year lease with a client so they can pretty accurately predict what returns are coming there from their US building. What are the returns here on on LX living.

Our departure point is the income that we’re looking to offer our clients where we for the first two years guarantee the 4% on the gross purchase price. So if you spend €5,000 you’ve got a gross annual return of €20,000. But if you take the leverage return, in other words assuming a 25% investment and a 75% loan, you’re ending up with returns north of 10% and after your own costs of rates and taxes and levies north of 8%. So we’re looking at an income return on investment – certainty for the first two years and we would expect that to improve as we go forward, of around 8%. And that excludes the capital growth on the underlying apartment and of course the currency hedge. What really interested us about Portugal and Lisbon specifically is that, in a recent survey, PricewaterhouseCoopers identified Lisbon as the number one destination for residential investment in all European cities. So it’s coming off a base which is growing strongly mainly nurtured by the macro tax environment that applies to Portugal, including a wonderful allowance for high net worth people investing in the country – its a 10 year tax holiday on foreign income, a non-resident habitual programme, There are a whole lot of underpinning factors which we believe are going to bring about substantial growth in capital asset, but we are certainly not going to want to make predictions on that basis.

Okay. Would you hand me back to Johnny. It looks like it’s an 8% number that we heard from Orbvest earlier on, Magnus didn’t give us any numbers but I’m sure he would agree with that as well but Johnny, what’s the reaction been like? When we spoke in April you were about to have a roadshow talking to people in Johannesburg and in Cape Town. Have South Africans come to the party? Have they been investing in this project?

One’s got to go back a few steps. Since the early 90s we’ve become very astute at pre-selling. In other words selling off plan because that’s the way we raise capital. Banks require a certain preset requirement. At our launches in Cape Town we had an incredible response. We had 700 people come to that launch to hear what we had to say and in Johannesburg 300-400. The professionalism of what we put out there in terms of the detail – what they’re buying, the size, the specification etc. is all there. It’s all on our web pages at LX Living. The response was enormous and I would say, of the 120 sales that have been concluded of the 150 that are available, 50% are South African and 50% from around the world. The French and the English are big markets, but most importantly the Brazilians because of the connection to the Portuguese. Also some dotted around the Middle East. Lots of enquiries coming and from people who want to invest in Portugal. Portugal is a good story. They have built a stable economy. They’ve put an enormous amount of money into infrastructure, their road networks are world class and it’s a beautiful spot. I don’t think we have to tell South Africans, or wherever you come from around the globe, about Portugal. Portugal sells itself. You’ve only got to look at the tourism and the amount of people that are pouring in there. We’ll be up and running in the next two to three weeks with the basement and then at the end of 2021 we’ll be complete. We’re looking at where more opportunity is to expand our footprint in Portugal.

Well I’m not surprised. 120 out of 150 units sold, only half of them to South Africans. Is this the kind of response you expected?

No, not really because when people acquire property off plan you need to really have a good story and you need to have partners, players, developers and promoters that have a good track record because you get checked out. They want to know exactly who they’re investing with. The South African response is ongoing, I’m very appreciative of that and we’ll just keep going and keep delivering quality products of the highest standards, giving a good service to our buyers. And we watch it carefully. But as I said, the research that has been done has really proved to us that Portugal is where we want to be. It’s a highly regulated society, the way of developing is regulated and doesn’t happen overnight so you’ve really got to know what you’re doing. We’re very optimistic, remembering that it sits right in the heart of Europe. It’s close to everywhere. It’s two hours to London and six hours to Boston. You can get on to the train and be in Paris in five hours. So this appeals to a lot of people. Most importantly 300 days of sunshine in a year. It’s got a great climate. The city Lisbon has transformed itself and they have done incredible stuff in fixing their city.

Johnny you’re worrying me now, maybe you’re going there and abandoning Cape Town.

I am a true South African. I love this place and this is where I live. But It’s just part of looking at other opportunities and it was just an opportunity that I couldn’t refuse

Just to close off with. How big is this project?

€90m.

So it’s just about done, as you’ve said 120 of 150 are sold, are you looking for other projects now of a similar size or will you go bigger given that that you have handled much bigger than this in Cape Town?

No. You’ve got to look at the marketing in Lisbon. Our partners GMG capital, have acquired two great sites in an area called MyVilla. It’s like the Woodstock of Cape Town. It’s right on the inner city where we’re going to be looking to re-energise and renew through mixed use and we’re very excited about that. It’s going through the normal licenses at the moment and we’ll be bringing that to the market in February/March next year. Each one is done on its own merits. It’s got to work and we’ll take it one step at a time.

So a little bit like what you did in Woodstock?

Exactly the same – identical.

So learning from the Cape experience, going off to another part of the world, applying the knowledge and then adapting to local conditions.

Correct. And the funny thing is that there’s so much similarity between the way we operate and the way they operate in Portugal. Throughout all the professional services, the architecture, the engineering. The one thing they do is that the units in Lisbon are much bigger than they are in South Africa and the quality of the specification is of a much higher standard. As an example timber oggie flooring is a standard there and therefore the value for purchasers is superb. There’s no inflation in Portugal but there is a very important factor on the supply demand situation. There is lack of supply, so your demand is great and that is forcing prices to rise, not at a dramatic rate – 5% per annum. There’s going to be growth, remembering we are selling off plan and deliver in 24 months time, so you are going to get capital appreciation in Portugal and that’s also exciting for investors – aside from the golden visa, which in itself has got its own dynamics.