PROPERTY: AN INVESTMENT OR JUST RISKY BUSINESS?

Property investment in South Africa is one of the more popular ways to generate capital for individuals.  Once you have acquired a home and find that you have some spare money, one could look into buying another property in order to rent or lease it out but you could also resell it for a decent profit.

The potential for profit is to a great extent due to the fact that many people are migrating into better neighbourhoods and more expensive homes as our property market has normalised since 1994.  Such a focus on housing results in a long term structural growth in the country, bolstered by a visible development of the middle class, which leads to a continuing increase in the demand for homes in suburban areas/cities.  South Africa is no exception to the world trend to urbanisation and if you buy and sell with your head and not your heart, you can make good money over a period.

The most important thing to remember is that a property which will generate income for you reliably is one you can invest in.  As with any investment, there can be periods of uncertainty and instability due to changes in the economy but if you have bought what you can afford in an area with strong demand for rental properties, you can weather such ups and downs.  Always plan for rainy days caused by bond rate increases, rates increases and those always inconvenient geyser and roof tile repairs, apart from other potential costs.

Increase in foreign investment has stimulated an already active economy, even though we are experiencing some downturns at the moment.  Investments in our county’s property sector are largely dependent on the economic cycle, as this mainly directs where most people will invest their monies.  However it is always better to invest in something that will increase your net wealth over a long period of time which is why sensible, planned investing in property is never a bad idea at any time.

Our economic system encourages entrepreneurship because it creates more jobs for people and if more people are working then more people are making money and, in turn, more people are able to purchase property.  There is also a very strong emotional pull to own one’s own place and that drives and sustains the housing market to a large extent.

Property does not generally depreciate (lose value) over the years unless not well maintained which is why managing your property to rent or lease should be one thing as a landlord you do effectively and efficiently in order for the property value to appreciate (gains value).  It is very different from other consumer goods: that shiny new car that quickly becomes a money eating rust bucket or that must have smart phone of the moment that so swiftly becomes an unreliable, outmoded brick.

As more people are now able to afford to invest in property, there is a steady increase in the demand for property, so usually a seller can sell his/her property which he/she acquired at a lower price a few years ago, at a higher price today and maybe even at a much better price in a few more years, as the market value of that property increases.  Property investment is perceived to be a good, low risk but also safe option to grow one’s wealth which one can control personally.

When a person decides to invest in property there are many consequent decisions to make: firstly, choose which property to invest in, secondly, decide whether to rent out the property in order to generate rental income which will help pay for the bond over the property, if one is not buying for cash.

In most cases, a prospective buyer will need to apply to the bank for a bond in order to buy that property.  Many will repay their bonds over a period of 30 years so leasing/renting the property out to tenants means you are using the tenant’s money to pay off your debt while also saving money at the same time, as yAou are not spending as much on paying the bond yourself.  You end up with a debt free asset, all going well.

You can usually never go wrong with sensible property investments as this is one certain way of generating wealth for your future and a good property purchase will be an investment that will also ensure that one’s family is taken care of as well.  However, there are immediate and future costs, ever changing taxes, compliance requirements and business structures to consider each time so please feel free to consult with us to discuss any proposed property purchase or development so that it does become an asset and not a continual drain on your resources.

By: Randles Attorneys

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *