If you’re considering buying a vacant stand, you need to do your homework beforehand. While everyone agrees that owning property is a good idea, not everyone can afford to start climbing the rungs on the property ownership ladder in the traditional manner by buying a starter home. In the past, it was fairly common for those who did not have the money to buy a home to purchase a piece of land, pay it off and, once they were in a financial position to do so, build their dream home.
Times have changed and, although land prices have dropped dramatically in some areas, the news that the cost of building a new home is somewhere in the region of 34 percent more expensive than buying an existing home has been a rude awakening for many would-be homeowners, who now have to put their plans on hold (even if just for the time being).
It is not only the cost of building that is putting some people off investing in vacant land. Even though there is no dwelling on the property, owners of vacant land are still responsible for the payment of rates, sewerage and in most cases refuse removal charges. And although these fees will undoubtedly be far lower than had there been a house on the site, the costs involved must be taken into consideration.
The site also has to be maintained to an acceptable standard, kept free of weeds and rubbish, and owners need to understand that municipalities have become quite radical about this issue. If the owner receives notification to clear the site and fails to act, the municipality concerned will send in its own clearing team and the owner will be billed for the work done.
In addition to the costs associated with land ownership, banks have also become increasingly reluctant to grant bonds on vacant land. Generally speaking, even when financial institutions are willing to finance land deals, they are demanding deposits in the region of 30 percent.
There appear to be a number of reasons for this, but least of all because essentially a plot of_ land is regarded as an underperforming asset_. When a bank finances a home, there is a tangible benefit and if the owner defaults on the bond payments, the bank has a good chance of recouping some, if not all, of its outlay. Unfortunately, the same cannot be said with vacant land.
The sale of vacant land in most areas of South Africa has come to a virtual standstill and, given that there are an increasing number of existing properties available at bargain prices, it seems that this is unlikely to change in the near future. It is, of course, the ideal time to buy if you are doing so for investment purposes, particularly if you buy in an area that is showing signs of increased demand. Many existing land owners have been severely burnt by the recession, buying at the wrong time, and at an inflated price. There are many who just want out of the deal and are willing to cut their losses and sell their land at rock bottom prices. This depends of course on where the land is situated. There are still pockets in South Africa where land is selling at a premium and this is unlikely to change. There are, however, many areas that have been severely hit by the economic downturn and these are where vacant land can literally be bought for a song.
Written in association with Elmar Pittendrigh, National Sales Manager, BetterBond