INVESTMENT: Property a Solid Addition to Your Investment Portfolio
Recent Western Cape Business News
PEOPLE move house for a variety of reasons - from political and economic factors to job transfers, new job opportunities, retirement, lifestyle and family considerations.
“Mobility is driving demand, increasing residential property values and rentals on property investments,” says Mike Greeff, real estate specialist and CEO of Greeff Christie’s International Real Estate. “And right now with growth rates of between 14 – 20%, there is very little to beat investing in property across the Cape Peninsula.”
A property should be considered as a medium to long term investment - preferably over 10 to 15 years. However when you sell, you need to recoup purchase costs of 10 to 12 per cent. You should also take into account income tax if a property is let, property taxes, and may also be liable for tax on any profit made if the property isn’t your main residence. Capital gains tax may also affect you if you own more than one property and is charged at normal income tax rates in South Africa.
Despite these “future costs”, Greeff strongly advises South Africans get a foot in the door now, as demand has spiked due to a string of purchasers relocating from Gauteng and KwaZulu-Natal as well as a steady stream of international investors, ultimately pushing prices up. Premier Helen Zille told the Western Cape legislature earlier this year that 56% of mortgage bonds registered by Gauteng residents in the last year were for properties in the Western Cape.
âProperty Type Performance
However, there are certain types of property which perform better than others as investments. “Long term, your growth will be 30% more when purchasing sectional title or in security estate than free-standing homes around you,” says Greeff.
There are also various kinds of property investment. Your home is an investment in that it provides you with rent-free accommodation. It may also yield a return in terms of increased value (a capital gain), although that gain may be difficult to realise unless you trade down or move to another region or country where property is cheaper.
Of course, if you buy property other than for your own regular use, e.g. a holiday home, you will be in a position to benefit from a more tangible return on your investment.
There are four main categories of investment property:
- A holiday home, which can provide your family and friends with rent-free accommodation while (hopefully) maintaining or increasing its value; and you may be able to let it to generate supplementary income.
- A home for your children or relatives, which may increase in value and could also be let when not in use to provide an income.
- A business property, which could be anything from a private home with bed and breakfast or guest accommodation to a shop or office.
- A property purchased purely for investment, which could be a capital investment or provide a regular income, or both. In recent years, many people have invested in property rather than shares or savings to provide an income on their retirement.
He advises investors to purchase a property directly from the developer at the inception of a project, as this is likely to yield decent returns. This is based on saving on transfer duties and high prices as it hits the market, meaning you could be able to “on sell” for a profit before even taking the keys.
“Investors scouting for a good buy should also look out for significant value adds like garages and income generators - garden cottages and self-contained flatlets with independent entrances,” adds Greeff. “A home in the shadow of power lines or cell phone masts is also likely to be slow starter.”
Prior to investing in a property, there are several important considerations, according to Greeff.
- Can you afford to tie up capital in the medium to long term, for at least five years?
- How likely is the value of the property to rise during this period and by how much?
- Can you rely on a regular income from your investment? If so, how easy will it be to generate that income, e.g. to find tenants?
- Will you be able to pay the mortgage if the property is empty and, if so, for how long?
Before selling, study your target market
A suburb already home to parks populated parents with young children is obviously a good location for a family home. The same is true for an area close to schools and sporting facilities. If you’re targeting young executives, you should be looking at a more urban location with apartments and easy access to public transport or motorways.
Be aware of the additional costs
Sellers are liable for a number of costs: estate agent’s commission, compliance certificates, bond cancellation and possible capital gains tax. Levies, rates and services bills must be paid up, arrears settled as well as a 3month in-advance payment to council.
A certified copy of the title deed is also required – and it’s been lost, the seller’s in for the replacement cost, as well as the costs of certain repairs, particularly if outlined in the contract. On the other hand, purchasers costs might include transfer duty, unless the seller is VAT registered and the sale is deemed to be part of the seller’s VATable enterprise. As well as VAT, depending on what’s recorded in the contract.
The bill for a rates clearance certificate, and in the case of a sectional title transfer, the cost of a levy clearance certificate. Registering a bond and costs relating related to a conveyancer’s certificate with regard to title restrictions if intending to renovate or subdivide. Finally, the purchaser should be aware of the potential to have to incur the costs of occupational rental, which the seller may charge if the purchaser moves in before transfer.
Greeff Properties specialises in Cape-based residential property.
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