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Is property a good investment?

By Isabelle Coetzee

At some point in your life, you’ll consider the prospects of buying property. Perhaps you’re aiming for commercial property with the hopes of receiving long-term gains, or maybe you’re ready to settle down in your forever-home with your family.

In either case, it’s good to consider whether property is a good investment. Justmoney spoke to numerous specialists to find out whether this is the case in South Africa.

Tip: If you’re ready to buy your dream home, click here to find out more about home loans.

To invest in property or not…

According to Jacques van Embden, managing director at Blok Developers on the Atlantic Seaboard in Cape Town, property has always been a stable, well-performing asset class.

“Property in Cape Town is particularly sound as an investment and this has been proven over many years as Cape Town property outperforms SA house price growth year on year,” says Van Embden.

Similarly, Lloyd Hobson, national head of sales at Leadhome, believes property is a good investment. However, it’s only a good investment if it’s pursued in the long-term.

“Now is the best time to purchase property as we are currently in a buyer’s market and you are very spoilt for choice. If you are looking at a house as a primary residence then consider use, enjoyment, and investment factors. Here your capital will grow over time,” says Hobson.

On the other hand, he explains that if you are purchasing property as an investment, you can buy a residential unit at a discounted price and still get good returns in the current market due to acquisition prices being very low. 

According to a spokesperson from Franklin Templeton, the decision to invest in property needs to be based on individual goals, investment horizon, and risk profile. Investors should not try to time the markets or asset classes and neither try to speculate on the macro-economic direction.

Renting vs. Buying

Hobson explains that buying a property, as opposed to renting one, offers better long-term returns and thus, good value for money based on the current market.

“A buyer will also be contributing to their own wealth and as their salary increases the property will become more affordable. There is no hyperinflation on the horizon and having a fixed asset will result in a solid long-term investment plan. However, if you are not looking to stay in South Africa, renting is the better option,” says Hobson.

According to Mpho Ramatong, channel head at FNB Home Finance Division, property is and still continues to be a good investment because it is an asset class that has proven to increase in value in the medium to long term.

However, he points out that South Africans buy or rent a property for various reasons. They normally buy a property when they can afford it and they usually use rental as a mechanism to get their finances in order. For example, to settle their debt until such a time that they can afford to buy a property.

Van Embden recommends that if one can afford the bond repayments, buying is always a better long-term play as one takes advantage of capital appreciation over time whilst enjoying the short-term benefits of property ownership.

“With different holding models available today such as short-term rentals, one can enjoy flexibility and agility in owning property that did not exist some years ago,” says Van Embden.

READ MORE: How much do you need to earn to buy property?

How to go about buying property?

According to Barrie Swart, head of property at Gumtree South Africa, there are five main considerations you should consider when buying property:

1. Establish how much you can spend

Drumming up the cash to invest seems like the biggest hurdle. It’s important to establish early on how much you will be able to put into property. Start by evaluating your existing assets.

When factoring in how much to spend, be sure to keep a chunk of cash aside for refurbishment fees, legal fees, and other purchase costs. It may also be worth chatting to a family member or friend with disposable income about standing surety, which will increase your chances of securing a loan.

READ MORE: Which bank offers the best home loan?

2. Decide how to spend it

Once you’ve arrived at a sum, decide how to allocate the funds. Do you want to buy one property or split it across a few properties? Again, there are risks involved. If you own property, you are going to be cash-strapped if the property stands empty for a time or if a major repair is required.

The sweet spot in terms of rental income tends to be properties of R1.4 million or more – cheap properties can deliver good returns in theory but are often harder to flip for profit or require refurbishment.

3. Chat to a broker ASAP

Brokers can assist you in becoming more mortgageable. If you are buying a first-time property or haven’t secured a loan in a while, this is crucial. Speaking to a broker before you spend too much time making plans is a smart move. It’s a good idea to pay off debts before you start.

4. Consider additional investors

You may choose to pool resources with additional investors in order to get financing. Bear in mind that if those investors default, you will be responsible for their portion of payment too. If you choose to go this route, ensure that there are solid legal agreements in place and that all parties know exactly how the investment will be made, managed, and concluded.

5. Location, location, location

If you are buying to let or flip a property, try to obtain a lower-priced residential unit in an area where year-on-year house prices are increasing faster than inflation. Even if interest rates increase, your rental income will increase as well. Townhouses and flats are great as they deliver a high yield and are easy to maintain.

If you’re ready to take the leap, find out more about home loans by clicking here.

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