Is residential property a good investment?
Is it a good idea to invest in residential property? Can it help you diversify your investment portfolio and grow your wealth? These are questions that many South Africans ask themselves. Pam Golding Properties’ (PGP) Hyde Park joint area manager, Jonathan Davies, says these are questions well worth considering as there are rewarding investment opportunities available in the residential property market.
He says the nature and diversity of residential property in South Africa can make it difficult for those who are not familiar with the market to come to grips with its dynamics.
He says this is one of the reasons that most residential acquisitions are made for the purposes of private residency or leisure. However, many astute investors have done well by including residential property in their portfolios, especially in the buy-to-let market, which offers both income and capital appreciation returns, he says.
2015 Africa Summit in Jhb - 25 Mar
On 25 March, the global spotlight falls on opportunities and potential for Africa’s built environment as the Royal Institution of Chartered Surveyors (RICS) holds its 2015 Africa Summit in Johannesburg, South Africa.
Engaging role players from across the continent and internationally, key speakers and panellists at the 2015 Africa Summit will debate and explore topics such as the future economic sustainability and emerging market outlook for southern Africa, as well as drivers, trends and opportunities for investment in Sub-Saharan Africa’s fastest growing regions.
According to Stanlib emerging market economist, Kganya Kgare, over the next five years, Africa’s economic growth is projected to outpace all other continents.
First-time 'buyer panic' may be mounting
First-time buyer demand in South Africa is still strong but affordability pressures and "buyer panic" may be mounting according to the 1st Quarter 2015 FNB Estate Agent Survey, which indicates a strong estimate of first-time buying levels expressed as a percentage of total home buying, however, this is down a little off the peak percentage of a few quarters ago.
"We believe that the mild decline may just point to rising challenges regarding home affordability of late," says John Loos, Household and Property Sector Strategist at FNB.
According to the sample of agents surveyed, first-time buyers were estimated at 25% of total home buyers, which is "mildly lower than the 28% high of the 2nd quarter of 2014, and the percentage has now been lower than last year’s high point for three consecutive quarters, causing the smoothed trend line to point slightly downward".
Beware suspensive conditions in home sales
Sellers often have to weigh up the merits of an offer to buy, possibly at a favourable price, but subject to the meeting of certain suspensive conditions, against a possibly lower or cash offer with no conditions attached. Often an estate agent needs to help the seller decide which of these offers would be best according to Bill Rawson, Chairman of the Rawson Property Group, who says a fairly high percentage of offers with suspensive conditions are prevented by these conditions from being executed.
He says a wise agent will, in drawing up the offer to purchase, insert an acceleration clause stating that should another more favourable offer materialise after this offer has been submitted, the buyer will be given anything from 72 hours to two or three weeks to meet the suspensive conditions, after which if they are not met the offer will become invalid.
Alternative financing for auction buyers
Property auctions are becoming a popular method of selling and buying property in South Africa. However, often the time taken by banks to approve loans hinders time-sensitive property auction transactions, and makes it difficult for buyers to secure the transactions. As a result, more buyers are turning to alternative lenders who are able to provide flexible finance solutions in just a couple of days according to Gary Palmer, CEO of Paragon Lending Solutions, who says the auction process is becoming a common industry practice as it offers both the buyer and seller immediate results.
He says as the property auction industry develops, so the need for alternate lenders increases. As a result, Palmer says they have noticed an increase in property auction buyers turning to alternative lenders for asset-backed finance to buy or re-finance a property, land or development that is on auction.
The 4 different ways of buying property
Currently in South Africa, there are four main ways in which a property can be bought according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who says deciding in which legal entity to buy the property is not a decision that should be entered into lightly, as each has its pros and cons.
He says the law in South Africa recognises various types of ‘persons’, regarded as either natural persons or juristic persons. He says a natural person is a person who acts and conducts business in their own name, while a juristic person is a legal entity, such as a company, trust or close corporation.