Is it a good time to invest in property?

The above question is heard almost every day in the property field. The answer is, like everything in life, not so simple. In broad terms, it really depends on your own goals and circumstances. Here is why:

If you are a first homebuyer, the chances are that you will require funding via the conventional banking sector. This is probably your biggest challenge, in view of very strict borrowing conditions imposed by the commercial banks, strengthened by RICA requirements, but mostly since the banks simply have very low reserves themselves. ABSA reported a decline in successful loans approved, despite the relaxing of the deposit requirements. Still, to find a deposit of R 200 000 is not so easy for young entrees to the market.

If you are a cash buyer, the current buyers market is probably the best that you will see I a long time and great bargains are to be had. Happy hunting!

If you are buying to rent, it will be wise not to commit yourself to too a high bond, in view of interest rates bound to rise towards the end of the year or definitely in 2012. Linked to this, indications by Standard Bank are that year on year house price growth dropped in July 2011 to 2,4% compared to 2,9% in June. The recovery in 2010/11 from the world wide recession, by now seems like a lone swallow that could not produce a summer. Real growth in values of residential properties seems to be depressed over the short term and your return on investment will be disappointing. Commercial properties also initially looked liked a good prospect, but a growing vacancy factor is pushing down rent.

A sobering thought for the rented market, is also the uncertainty if Government is going to push trough the bill set to increase taxes on secondary homes, despite reassurances by the Deputy Minister of Cooperative Government and Traditional Affairs, Mr Yunus Carrim. Arguments are questionable that the reclassification of residential land to commercial or business, if rent is exchanged, only applies to guest houses, small hotels, etc. Everybody knows that with the rezoning of a dwelling to a guesthouse or hotel, the municipality anyhow reassesses the property for tax purposes and hence there is no legislation required to achieve this. Time will tell if this bill is going to destroy the rental and holiday home market.

The one field where good deals can be made, is the investor with a good eye for the potential of properties in a transitional zone. These can take many forms, like the converting of a house to an office or industry, or the addition of a second dwelling. Similarly, the purchase of a dwelling with potential to subdivide the stand or to rezone for multiple dwellings. A town planner can advise you on policies of the municipality where transition of land-uses will be allowed. The cost of the necessary professional work, plus the inevitable bulk services contributions payable to the municipality will in most cases be relatively low, compared to the value addition achieved by the process. This is probably the quickest way to make a profit on property, if you buy wisely.

Lastly, inexperienced township developers have closed shop during these depressed economic times. However, the clever developers are currently very busy with preparations to be ready when the upswing happens. Township establishment by its very nature, is extremely time consuming. The result is that if you wait for more optimistic signals before you embark on a township establishment process, the chances are good that you will hit the market on the downswing. The relative cost of negotiating the approval stages of a township, compared to the cost of installation of services, marketing, etc is a drop in the bucket. It therefore makes good sense to spend that money now and get your paperwork in place and when the first signals of the upswing is showing, you will be ready for the markets.