The steady increase in buy-to-let residential property investors has been both heartening and beneficial to property developers, says Bill Rawson, Chairman of the Rawson Property Group, whose own development company, Rawson Developers, has already completed five new developments in five years and still has two years of new work already secured.
However, said Rawson, it is surprising how many intelligent people investing successfully elsewhere have not yet realized the profit potential in property right now, especially on new developments.
“A survey done by our development teams,” said Rawson, “has shown that in the three months since the completion of The Rondebosch development in Belmont Road, Rondebosch, where prices were pitched from around R800,000 to R1,2 million, resales have been taking place at mark-ups of anything from 10 to 32%, while those who chose to rent out their units have been getting 6 to 8% returns from day one.”
On new developments, said Rawson, the chances of making a sound profit are increased by many developers offering a 5% discount early bird purchase price and by the developers taking anything from 12 to 24 months to complete the building and bring about transfer. During this long period the price might well have risen by a further 10 to 15%, especially if the development is in a high demand area.
“Developers,” said Rawson, “always want to make as early a start as possible on their developments but to get the bond finance they have to sell a specific percentage of the units first and this can lead to their making the first sales at very competitive prices.”
Once a satisfactory level of sales has been achieved, said Rawson, the developers may well hold onto a small number of units for selling at a later date, usually at a significantly higher price. This, in turn, tends to push up all prices in the developments.
In some cases (those in areas of less strong demand), added Rawson, the resales may not take place at significantly higher costs but, almost always in South Africa, the rents will be rising at anything from 8 to 12% per annum, especially on new projects.
Investors’ profits, Rawson pointed out, are also increased by the stipulation that full payment is not required until transfer (on signing the deal, the investor usually has to put down only a 10% deposit) and are further improved by the fact that the bond interest rates are now low and are likely to remain so for some time to come.
“Many potential investors are convinced that they will never qualify for a bond on account of their limited income streams. This is far from being the truth,” said Rawson. “The banks are exceptionally adept at assessing the risks and the security of new developments and, while they are unlikely to take much account of profit forecasts, they will certainly recognize inherent value. Provided that the investor is prepared to produce a bigger than usual deposit, say 20 to 30%, the bond is quite likely to be granted, especially if the investor is seen to be in a steady job where he has been employed for some time.”