Contrary to popular belief, the South African residential property sector remains one of the more attractive and risk averse investment strategies.
With the market in decline, property investor and entrepreneur, Grant Smee says that there are still pockets of excellence and that taking a long-term view to property investment will serve homeowners and investors in the long run:
“It is a buyers’ market, and this is set to continue for at least eighteen-months. There have been reports of high levels of sales during lockdown where buyers have either bought properties that they saw prior to lockdown or that they viewed via a virtual tour. We’ve also seen a resurgence in property demand on the East Coast in areas such as Ballito and Umhlanga”.
Grant foresees an uptick in residential property buyers largely due to low interest rates. However, he cautions that buyers should consider both best and worse case scenarios before investing: “Covid-19 has taught us to prepare for every eventuality. When the interest rates rise again, can you still afford your home? As an investor, can you afford your bond repayments should your place stand empty, and for how long?”
Where should you put your money?
“Co-living and communal spaces (particularly ‘student lets’) remain an exciting area for investments – particularly in the current climate. Here, an owner has multiple leases to s single property, therefore with all things considered, their overall risk should be lower”.
“With our large, young population, secure estate living remains popular for new families or couples looking to start a family. Buying off plan is also a great option as it gives you time to save and generally starts increasing in value before you even move in”.
- Buy-to-let – the most common route to take: “Here, buyers purchase a home with the intention of renting it out to cover the bond”.
- Short-term letting – “Airbnb has raised a few eyebrows over the years as its unregulated and it has been privy to security issues, but it is lucrative if handled correctly”.
- Room to rent – “We don’t see this often, but it may pick up with many struggling to afford homes and others struggling to find tenants. Here, tenants enter into a consensual agreement with their landlord to reduce their rental by sub-letting to another tenant.”
- Develop to rent – “This is lucrative but requires capital investment. The developer generally develops at a much lower costs and is therefore able to achieve a higher return on their investment.”
- Commercial multi-let – “The commercial property sector, which was once an attractive area for investment, has shown extreme vulnerability. I do however believe that there will be opportunities in future to reinvent the commercial sector”.
What are my finance options?
Grant says that there are various options to consider:
- Partnerships – “Here, you come to a written, structured agreement with a partner to cover the costs of your investment. This should generally be a short-term investment or ‘flip’”.
- Traditional finance – “Based on your affordability and risk profile, you seek and receive finance from commercial banks.”
- Structured finance – “This is commonly used for investors with a portfolio. Investors receive a lending facility from a private bank and their property portfolio is looked after as a whole”.
- Joint ventures – “This is best for parties who have different things to bring to the table, for instance, one might bring expertise while the other brings finance”.
- Family investors and angel investors – “For those who need help, structuring a deal with your family or an outside investor (angel investor) is an option”.
Tips for investors:
Determine your strategy and goals: “Do your due diligence and educate yourself. Rather than listening to various sources, find a trustworthy source of information and stick to your plan. Know your ‘why’. If you are purely investing for quick gains, then the property market might not be for you. We need to take a long-term view to the market and be realistic about the returns in the short, medium and long term,” he says.
Things change: “It’s important to continuously revisit your goals and strategies. As we grow older, our appetite for risk changes, as does our finance independence”.
Negotiation: “When negotiating, factor in every cost. Our levies are on average R1500, a proportionally high cost often forgotten when evaluating a property. Our interest rates will change, the market will change. Insurance is needed, bond and transfer costs are to be factored in and even the cost of eviction. Eviction is an expensive and laborious process so be sure to factor in a monthly fee using a trusted service provider,” Grant concludes.