property as an asset class.
Property as an asset class.
Imagine you’re stuck in traffic in Johannesburg, trying to make it to your 10am meeting in Sandton. Frustration mounts as taxis and Checkers Sixty60 scooters weave around you. In a moment of exasperation, you sell your car at a bargain and buy a bicycle, convinced it’s the quicker route to your destination. While this may sound absurd, it reflects the mistakes many investors make in the property market, making short-term decisions for long-term journeys. Stick with a vehicle that will take you to the end of the road. - Don Connelly (adapted)
Investing in property in South Africa isn’t a quick fix but a deliberate, strategic part of your broader financial plan. Here’s a guide to help you navigate this significant asset class effectively.
1. Know the Full Cost of Property Investment
Many South African investors focus only on the purchase price of a property, overlooking other crucial expenses. Here’s what you need to budget for, inter alia:
Transfer Duty: This is a tax levied by the South African Revenue Service (SARS) on the purchase price of the property. The amount depends on the property’s value and can be a substantial expense.
Bond Registration Fees: If you’re financing the property through a home loan, you’ll incur costs for the bond registration.
Levy Stabilisation Fee: For sectional title properties or when purchasing in an estate, you’ll need to pay a levy stabilisation fee. This is a contribution to a fund for future maintenance of common areas and can be significant, especially for newly developed properties.
2. Align Property Investments with Your Long-Term Financial Planning Objectives
Property should be viewed as a key component of your overall investment portfolio, a cog in the wheel of the bicycle let’s say. It’s essential to align your property investments with your long-term financial objectives. Are you aiming for rental income, property appreciation, or a combination of both?
For example, if you seek capital growth, you might consider investing in emerging areas with potential for future appreciation. Conversely, if you’re looking for steady rental income, established neighborhoods with high rental demand may be more suitable.
Discuss the ownership structure with your financial planner, do you buy the property in your personal capacity, in a company or via a Trust and how this impacts not only your immediate financial planning objectives, but as well as your estate planning (who and how is the property inherited)
3. Research Market Conditions Thoroughly
Before investing, take the time to understand current market conditions. Are property prices rising or falling? What are the future trends? What do interest rates look like going forward and how will they impact my ability to repay my bond? Just as you wouldn’t drive a car uninsured, you shouldn’t invest in property without a clear understanding of the market landscape.
4. Consider Liquidity and Investment Horizon
Unlike more liquid investments like equity, property is a less liquid asset. You can’t quickly sell it without potentially taking a loss. It’s important to consider your investment horizon—are you prepared to hold onto the property through market fluctuations? A short-term approach may lead to financial losses, while a long-term strategy typically yields better returns.
6. Diversify Within the Property Market
Diversification is key to managing risk. Within the South African property market, consider investing in different types of properties—residential, commercial, or even in various locations. Diversification can help balance your returns and manage risks effectively.
7. Seek Professional Guidance
Don’t underestimate the value of professional advice. Estate agents, financial planners as well as accessing information via any of the reputable property portals are invaluable in helping you make informed decisions. They provide insights into market trends and guide you through the complexities of property transactions.
Conclusion
Investing in property is a serious commitment and should be approached with a strategic mindset. Much like you wouldn’t swap a car for a bicycle midway through your journey, avoid making hasty decisions in property investments. Consider all costs, align your investments with your long-term goals and understand market conditions. By adhering to a well-thought-out strategy and leveraging expert advice, you can successfully navigate the property investment landscape and achieve your financial objectives.
Choosing a property in a developed estate like Brettenwood Coastal Estate can further enhance your investment strategy, offering a blend of mature facilities, a vibrant community, and a foundation for future growth.
