AA - May 2020

Authors: Berry Everitt
Group CEO
May 2020

Don’t delay, find a way to inverst in real estate today

Astute investors have traditionally turned to real estate in tough times – for several reasons, starting with the fact that the demand for rental homes always increases when consumers are under financial pressure.

   This means that if you buy wisely in an area that is well-located and well-priced, your rental property or properties will seldom be vacant and you will have a steady stream of rent coming in to cover costs.    

   In addition, real estate is also a tangible or “hard” asset like gold; your acquisition costs will be lower because property prices tend to go down during recessions; and interest rates also tend to be lower, making home loans more affordable.

   And finally, you will set yourself up for good capital growth. Many investors who had the courage and foresight to buy property straight after the 2007/ 09 financial crash have seen the value of those properties increase by more than 50% over the past 10 years.    

    What is more, you don’t have to be super-wealthy to invest in real estate. There are many areas where there is high demand for cheaper rental apartments and houses among lower-income tenants and students, for example, and there is also no transfer duty payable on pre-owned homes priced at less than R1m. 

   These days, with technology making is possible for many more people to work from home full-time, there is also rising demand for rental homes in country towns, where property purchase prices also tend to be much lower than in the cities.

    There are also many options for pooling your resources with others who are interested in buying investment properties. Crowdfunding is the most modern method, but South Africans may be more familiar and comfortable with a stokvel set up with people you know and trust.

    Alternatively, you may wish to invest together with just a couple of friends or members of your own family, and in general SA banks are quite amenable to granting home-loans for such joint purchases, provided there is a clear agreement in place about who will be responsible for the bond repayment.

    This agreement needs to be drawn up by a professional, and once that is done, investors are also advised to consult a reputable mortgage originator and obtain pre-qualification for a home loan so you know exactly how much you can afford to spend.

    Next, decide on the type of property you wish to buy, identify areas where there is high demand for rental property, go through the online listings for these areas – and contact the agents involved to arrange virtual viewings and start negotiating price.

   You should also look out for new developments in your preferred areas, because there is no transfer duty on units purchased directly from a developer, and because you stand to see rapid capital growth by the time an off-plan unit is actually built. In addition, newly-built units come with certain construction guarantees and generally require much less maintenance for the first five years of ownership.

   But whether you are aiming at a pre-owned or a new home, you should know that you don’t have to wait until lockdown is over to scoop up the best bargains, because technology makes it quite possible to conclude a property purchase now, subject to you viewing the property in person at a later date. This means that your agent, bank and attorney can go ahead and prepare all the necessary documents ready for a quick transfer once you have seen the property, and that you will be able to find a tenant without delay.

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