Value In Property Investment

THE CONFLICT between sound local economic news and renewed concern about the euro zone crisis, slower growth rates in China, Brazil and India and a UK recession call for a pragmatic approach to property investment.  The fundamental property drivers remain price and the availability of finance, the first measured by interest rates and the second by banks' willingness to lend and the criteria attached.

Seeff regional chairman and Dolphin Coast principal Andreas Wassenaar says the July reduction of the repurchase rate by 50 basis points reflected the impact of the slowing global market on the local economy and SA's main trading partners but paved the way for cash buyers, in particular, to take advantage of a buyers' market.  "It's said you make your profit in property when you buy, not when you sell.  If that is the case, rarely has there been a better profit-making opportunity," he says.

Pam Golding Properties uMhlanga and eMdloti area principal Elwyn Schenk believes the dilemma facing aspiring and potential investors has "never been so acute", underlining why property again appears to be a traditional, solid and lasting store of value.  "Investors view investment property as the ultimate inflation hedge, providing a regular, escalating income and healthy capital growth.  "Globally, fortunes have been made through property investments and today's tighter market conditions present an opportunity to buy property, often below replacement cost," he says.

However, as with every investment, property requires a selective approach.  Key to decision-making is position, with blue-chip areas and high-growth nodes likely to be more attractive.  Typically, these include properties in the Western Cape, Northern Durban/uMhlanga and Sandton, but also areas where substantial government infrastructure spending will spur growth, such as port developments around Richards Bay.  Schenk says property is one of the few asset classes against which people can borrow.  This is especially beneficial at times of low interest rates, since gearing can be maximised to improve net returns.  But investors also need to understand investment dynamics.  "Sound investment logic does not mean buying the best property in the area.  Billionaire Warren Buffet recently advised US investors to buy older homes in good areas to restore, to hold or resell," he says. In uMhlanga, prices range from R700 000 for a one-bedroom flat near Gateway to R18.9 Million for an Oyster Quays penthouse, with a range of options between. 

Harcourts Hilton principal Andrew Line says the English-style village is in demand for buy-to-let or potential bed-and-breakfast outlets. These properties offer opportunities for investors to secure assistance in paying off a bond.  One entry-level property was a five bedroom house priced at R1.15m, while at the top end of the market was a seven bedroom gentleman's residence in two of landscaped garden complete with a formal lounge, chef's kitchen, billiard room and gym offering potential for conversion to a boutique hotel.  Line says buy-to-let investors have dwindled significantly in recent years, but are now returning to the market with renewed vigour and confidence.

HOWEVER, RE/MAX OF SOUTHERN AFRICA CHIEF EXECUTIVE, ADRIAN GOSLETT says determining the fair market value for any property depends on numerous aspects that influence the perceived value.  That means correctly pricing a home is paramount, especially in a buyers' market.  "If a buyer compares two properties in the same area offering the same features, price will become the only factor that will separate each property and influence the decision-making process," he says.  Consequently, it is vital for agents to complete a comparative market analysis to provide sellers with the foundation from which to work.  The base analysis then provides the platform on which a home's distinctive characteristics can then add or detract value to ensure a fair market price and the swiftest time between going to market and concluding a sale.