Everyone needs fuel, whether you drive your own car, use public transport, or own a business; it is one of the very few things in life you have a choice in paying for.
It is little wonder, therefore, that petrol stations and industrial properties zoned for use as fuel depots are among the most lucrative real estate investments in the country at the moment.
The return-on-investment is 33 percent and you can get your money back in 36 months.
High Street Auctions Director Greg Dart says South Africans use more than 30 billion litres of fuel per year, with consumption not only driven by the country’s massive dependence on its road network for passenger transport and freight movement, but increasingly on powering generators to keep commerce and industry alive during loads shedding.
“Industrial property has been the consistent shining light in the commercial sector for several years now, but petrol stations in particular are enjoying renewed interest from investors – not surprising considering the returns offered by this specialised sub-sector of the market.”
Just like any property or business investment, anyone can buy a fuel station – you generally just need the money.
In South Africa, petrol stations usually operate within two broad business models, he explains. The first is a franchise route in which a petroleum company owns the asset, but offers the forecourt management to a franchisee.
“There’s certainly money to be made as a franchise owner, but it’s not nearly as lucrative as the alternative.”
The second, which is of considerably greater interest to real estate investors, offers higher margins on returns because you own both the property and the business, with a retail licence agreement from an oil company.
Andre Ceustermans, owner of Cyrus Properties – which specialises in petrol stations for sale and operates online at petrolstationsforsale.co.za, says investing in fuel stations has always been popular, but such properties do not come on to the market frequently.
“If you have a job, you need fuel. If you own a private vehicle or use public transport, you need fuel. If you own a business, you need fuel. More and more cars are on the road every year in South Africa, and everyone needs fuel.
“In a tight economy, people can cancel their DSTV, or insurance, or retail accounts, but they cannot really cut out fuel. They can cut down on driving or buy a car that uses less fuel, but they still need fuel.”
This is why petrol stations are lucrative; they offer a 33 percent return on investment. If you look at a Spar, you get a 15 percent return on investment, he says, adding that investors can get their money back in 36 months with this “excellent” investment option.
In South Africa, only about 60 petrol stations come up for sale each year and there are just over 5,000 stations in the country. Ninety percent are owned by oil companies such as Sasol, BP, Engen, and Shell.
Of the 10 percent that is privately owned, those that have been listed for sale over the past couple of years have been because the owners have emigrated or retired.
Buying a fuel station business (franchise) costs from R1 million to over R100 million as this excludes ownership of the actual property.
“We are busy with a transaction which is the sale of a cluster of eight petrol stations for R440m, including the property.”
Ceustermans says anyone can buy a petrol station franchise, although oil companies in South Africa typically prefer potential purchasers to have at least 50 percent of the total funding requirement needed to acquire a service station business in cash.
“This means that you should have a substantial amount of liquid funds readily available. Additionally, you must be able to obtain approved finance for the remaining balance.”
Apart from the financial aspects, he says oil companies have their own preferred requirements for appointing a dealer or tenant for one of their petrol station sites. While these requirements may vary among different companies, it is essential to be aware of their expectations. These requirements could include factors such as previous experience in the fuel retail industry, a strong business plan, a good credit record, and a commitment to maintaining high operational standards. Each oil company will have its own set of criteria that potential purchasers should familiarise themselves with before considering the purchase of a petrol station.
The benefit of buying a “white station”, which is one that is not affiliated to a well-known brand and the property belongs to the owner, is that the owner earns the full cost of the fuel per litre and does not have to pay a portion to the oil brand. Furthermore, if you sell a lot of diesel, you can drop the price as you like because diesel is deregulated.
“So you can draw in a lot of people...You can also choose who you purchase the fuel from.”
The downside, however, is that motorists may be less likely to use a fuel station that does not carry a recognised name as they may not be sure of the quality of the fuel. This is despite the fact that most of the fuel use in such stations is purchased from the big oil companies.
Despite the significant profitability of this property sector, Dart says one of the biggest barriers to investors is that it can be a very long game.
“The land use regulatory framework for petrol station zoning is eye-watering, so if you’re an investor starting from scratch, it could be several years before you make your first rand – never mind see a return on your investment. Land rezoning for underground chemical storage is slow, detailed, and expensive.
“The best way to enter this lucrative market is to buy an existing service station or land that is already zoned for the purpose.”
High Street Auctions has three of these prime investments going under the hammer this month.