It has been widely publicised that the South African property market is well on the road to recovery, although house prices remained under pressure in the first quarter of the year, and are expected to continue to do so, as reported by many financial institutions.
Adrian Goslett, CEO of RE/MAX of Southern Africa, says that with many properties selling for an average of around 10% below the asking price, there are many opportunities for buyers who can afford to invest in property. “However,” he warns, “just because you have bought a property at a good price doesn’t guarantee that you will realise healthy returns. There are still certain rules which apply to any property investment in order to ensure good capital gain over the long term.” Goslett says that while now is certainly a good time to invest, with market conditions favouring buyers and interest rates still at an all time low, there are seven golden rules for any property acquisition that buyers would be wise to follow.
These seven rules, according to Goslett, could make all the difference when it comes to reaping a return on your property investment:
Question, research, research and question some more
Goslett says that when buying a property you need to ask yourself several questions such as whether you are buying the property to live in or as an investment property. If you are going to live there, what features and amenities appeal to you? If you are going to rent it out, who do you anticipate your tenants will be? The internet is a valuable source of information for any property buyer and can provide a good spread of details about the area, the estate or complex. Internet research can also reveal the selling price of other properties in the same area but nothing replaces checking out the location yourself. “Ask your agent for a comparative market analysis and drive around, walk the streets, see what the traffic is like, who your potential neighbours could be and what facilities and amenities are on offer nearby,” says Goslett.
The little differences count
Buyers often underestimate the importance of location and just how much the little differences between two locations can impact on property pricing. The long touted property mantra of location, location, location holds true more now than ever before. Buyers have to understand why property values differ from suburb to suburb and in some cases from street to street. “Rather buy a property that costs less in an area that offers more, than an expensive property in an area that has limited appeal,” says Goslett. “If you are buying an investment property to rent out, remember that different things appeal to different people. The hustle and bustle of a cosmopolitan city will appeal more to student and young executives than to those wanting to retire.”
Don’t conform
James Caan, one of the moguls on BBC's Dragons' Den, says property investors should be mavericks. "I've always worked with the ethos that you should observe the masses and head in the opposite direction, as that's where opportunities lie," he says Caan, who lives in an Art Deco townhouse in St John's Wood, north London, believes that property investment has always been about a herd mentality. Goslett says that successful property portfolios have been built up by many savvy property investors because they are able to pinpoint opportunity to invest before the masses. “They lead rather than follow, but weigh up risk carefully and complete extensive research before investing,” he says.
The basics form the backbone of investment decisions
Goslett advises that property buyers keep the fundamentals of the property in mind at all times. “The fundamentals would be the ever-important location of the property, the value per square metre and the potential rental yield. These will always be the key criteria on which an investor makes a decision,” he says.
Develop a plan
As with most things in life, property buyers and investors need to have a plan. “If you are an investment buyer, think about where you would ideally like your portfolio to be in the long term. If you are buying a home in which to live, think about where you want to live in five or ten years from now. Do you want to own a holiday home or perhaps want to purchase a small unit in a complex for your children? Having a concrete goal helps to keep you focussed and gives you something to work towards. Don’t limit your thinking to what you feel you are able to purchase right now, but rather dream about and plan for the future,” says Goslett.
Diminish your debt
Affordability and access to finance remain key elements in any property transaction. While there are a large number of cash buyers around, many have to apply for finance. In order to ensure that any application for finance is successful, Goslett advises property buyers to watch their levels of debt, make sure they have a clean credit record and be able to comfortably meet minimum monthly payments. “Saving up for a deposit is also a must for any property investors,” says Goslett, “as most financial institutions still require a deposit of between 10% and 20% on any home loan.”
It’s about more than just the building
While one always has to be sure that the property they purchase is a good investment decision, it’s about more than just the building. Goslett says that while the potential to make profit on a property - either from a rental income or when sold later down the line - this should not be the only factor that sways a buying decision. “The basic principle is that if you wouldn’t want to live in it, it’s not likely many others would either. The property has to appeal to you, you have got to want to own it,” he says.
Goslett concludes by saying that many of the investors who have seen great returns from their property portfolio have not just been lucky or did not just catch the market at the right time. “It’s about much more than that,” he says. “It’s about doing your research and not buying based on just a whim without carefully weighing up each option.”