With all the recent events happening around Brexit, investment in property in South Africa is becoming a more attractive option for many people looking to capitalize on the weak South African Rand, the current property market favoring buyers with strong currency and value for money properties.
When I think about reasons ‘for’ and ‘against’ investing in property in South Africa, I always remember the elderly landlord, George. We were sitting together discussing the lease agreement we were about to sign for one of his properties when he said: “It is a time you also start buying apartments for investment. This is the best way to live in comfort in your old age. Look at me, I have 65 properties that I rent out across Johannesburg, and I am always on the lookout for new developments to invest in.”
65 properties and counting! This strategy clearly worked for George and got me thinking, is it a good idea to invest in property. Let’s list some points to consider.
Value for money
The low value of our South African Rand means that your foreign currency will get you much more value when purchasing a property. Foreigners find our housing prices extremely affordable because of the exchange rate and in comparison to what they get back home for the same amount.
A large 4 bedroom house that costs around 200’000 Euro in South Africa can easily cost double or even triple that amount in first world countries.
Invest in a holiday home
The great thing about holiday homes is that you have your own place for holidays and, if managed well, you can still make money out of it.
Home by the sea
For a seaside holiday home consider buying a property near a beautiful seaside, in places such as Balito, Knysna, Kenton On Sea, St Francis or Cape Town and the surrounding picturesque little towns and villages. Stay clear of wild and remote places that may appeal to you but draw few potential holiday-makers and the harsh weather conditions mean higher maintenance costs.
You want your place to be rented for most of the year to cover costs and make profits. The peak season months can easily make you 5-10 times more than the off season months, but, if you manage your occupancy well, you will cover your costs and even see a profit out of your holiday home.
Our beautiful seaside is popular with foreign tourists and locals and you will likely have a reasonable occupation rate if the property is well positioned and marketed well.
A drawback is that seaside holiday-makers are seasonal and you may not have the pleasure of occupying your own place in peak season when the weather is at its best.
Remember that seaside homes have high maintenance costs due to the high humidity and weather conditions and you will have to pay a local estate agent to manage the renting and maintenance of the property in your absence.
Home in nature
Another idea is a holiday home inland, in a game reserve, beautiful holiday town, or in the mountains. This could be a home in Sabi Park, a nature reserve near the world famous Kruger Park, or in a lifestyle nature estate such as Walkersons, near Dullstroom, famous for its fly fishing, a house in Clarens, a popular destination for artists or in The Drakensberg.
The appeal of these places lies in their natural beauty and moderate climate most of the year. Finding tenants may require more work because they are not as well-known as the seaside destinations and you may have to market more aggressively both via local agents and online. If your place is inside or near a game reserve, you should expect a reasonable occupancy rate. Check the terms and conditions of the reserve, before buying, some places put a limitation on how many days of the year the home can be occupied for and this can be a serious limitation on the potential income you can derive from renting.
Holiday rentals can be a great investment if you get it right and ensure high occupancy rate. Think of hidden costs related to replacing broken or lost items from the constantly changing tenants. Add up your projected costs to maintain, pay rates and taxes, levies, utilities, agents fees, bond costs, and even income tax, to decide whether your holiday home is worth buying.
Long term investment rentals
Buying a property to rent for long term occupants can be beneficial if you choose right and manage the tenants proactively.
Small or medium size mid-range rents faster
Stay clear from large houses or high-end expensive apartments that seem attractive due to the high rental they can get. There are many more potential tenants in the middle range rentals than in the high-end corporate rentals and you risk having an expensive property that does not rent all the time due to its high cost and rent.
Buy close to the multinational corporates
Many international companies work on long-term projects in the country, requiring foreign staff to live in rented accommodation for years. Buying a property to rent in areas with high density of multinational companies is ensures your property will be in high demand.
Signing a deal with a corporate takes time and effort, initially, but also gives you the security of getting your rent paid and even recovering the costs for damages if your lease agreement is drafted correctly.
Try to negotiate long-term leases by adding more services into the rent. Signing a 3-year lease with a corporate is not uncommon, and, if you manage the relationship well, the company is likely to keep extending for many years.
Size matters
Buy a 2-3-bedroom apartment or townhouse, to rent to single professionals or young couples, or a 3-4-bedroom cluster or townhouse, to rent to professional families.
Look and feel
Keep the property unfurnished, but be negotiable on furniture, if the corporate clients demand it. Stay clear from unusual designs, colours, and furnishings. While cutting edge design may feel close to your heart, it will not appeal to the majority of potential tenants. Choose a property that has a standard look and layout and keep in the beiges and whites colour range. Add splashes of colour with artwork on the walls and interesting decorative pieces and cushions, that can easily be removed, if the tenant does not like them.
Maintenance
Choose a property that is low maintenance: aluminum window frames are better than wooden frames, indigenous plants in the garden are better than exotic plants. Do not buy a flat roof home, this is very likely to have damp and leakage problems at some point. Make sure you install a pre-paid electricity meter to avoid exorbitant electricity bills at the end of the lease.
In conclusion, to invest or not to invest?
Think of property investment only as a long-term investment plan, more than 5 years, and only if you have sufficient capital to cover the costs for at least 6 months. Carefully selected properties will certainly appreciate in value over time, but their rates and taxes, levies, maintenance costs and bond costs will too. Carefully weigh up costs against potential income before making the final decision.
We at Expats On The Globe have assisted many of our clients with the process of choosing the right property to buy and finding quality tenants for them. Call us if you are interested in investing and need a trusted advisor to walk the journey with you.