Advice and Opinion

Speculating with property is a lot easier in the residential sector – Abacus DIVISIONS

There are many people, or investors, in the property market who strive to make money by flipping a property, or buying and selling properties within a short space of time. This can be very rewarding – but it comes with a high level of risk – especially in the office property market.

This is according to Org Geldenhuys, MD of property development and management company, Abacus DIVISIONS: “Lots of people buy property in the hope that it will increase, enabling them to flip the property by selling it in the short term –and, in so doing, make a healthy profit. But this is speculation, which can obviously be risky.”

Buying and then quickly selling a property at a higher price is only viable if you are astute enough to buy the property at a price that is below the market value, or if the market is buoyant and prices are in an upward spiral.

Timing is often the key issue – and this can determine whether there is sufficient demand for the property from buyers.

It is also easier to follow this methodology in the residential property than in the commercial property sector. One of the reasons for this is the cost of entry. In the residential market a buyer could get away with spending as little as R1 million. But the ticket prices –and the point of entry – are far higher in the commercial sector.

“If you want to speculate in the commercial property market you would arguably be looking at several million Rands, and not just one or two. The buyer would then have to come up with a 30% deposit and find a tenant, or tenants, who receive the bank’s approval. If the bank thinks that the tenant is not in a solid financial position themselves, the bond could be declined. This makes speculation a lot tougher in the commercial property space,” said Geldenhuys.

But investors can also adopt a speculative approach if they build for their own purposes –to occupy the building as an owner/occupier. By doing this, the investor also leaves the door open for selling at a later stage, either in the short term, or in the medium to long term.

“A person’s asset base can be improved if they buy, or buy and build, in the right place – like a secure office park. It is likely that the value of the property would increase more in a sought-after office park, meaning the buyer could make a profit wither he is an owner/occupier – or someone who builds to rent.

“In either scenario the property could possibly be sold after a short period of time – in other words, flipped – potentially realising a handsome profit for the owner.

“Naturally, if the investor has a pile of cash in his pocket, speculation is a lot easier. However, it is still possible to burn cash reserves if the wrong decisions are taken, if building maintenance is ignored, a tenant is lost, or if the market simply turns.”

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