Property Investment Cape Town
We are looking for
Property Developers!

Why property investments are a good bet

When you buy your first home, the usual motivation is to acquire your own property instead of paying someone else’s bond, and, of course, you gain independence.

A rental property producing a good yield as an income generating property will bring in the necessary monthly rental which, if managed wisely, can generate enough profit to buy an additional property to rent out. This process can go on until the investor has a portfolio of rental properties paying for themselves, says Hutchison.

This is according to Craig Hutchison, CEO of Engel & Völkers Southern Africa, who says most young people seek freedom from living at home and having to abide by family household rules. “The very idea of buying their own home is exciting, and they often do not realise what a wonderful investment they are making. This is the start of their financial independence,” he says. According to the FNB House Price Index, the average house price for April 2015 rose 5.0% year-on-year. Despite the nominal house price inflation slowdown, however, recent months’ house prices continue to grow positively in real terms, when adjusted for CPI inflation, says Hutchison. Due to the slower house price growth, he says this creates opportunities for the lower income buyers as prices remain achievable and property still offers an excellent investment channel.

Therefore, Hutchison says now is a good time to buy, especially after the recent decision by the SA Reserve Bank to raise the transfer duty thresholds on property transactions; costs on transactions below R2.25 million have actually been reduced. He says particularly the Millennials, the age group under 30, find that this is financially sound, and an investment in property is what they should consider. A wise investment at this age could set them up for life. There are different options for buyers to consider when looking at a property purchase, either as a primary residence, or in a buy-to-let scenario.

Both scenarios create different opportunities: – A rental property producing a good yield as an income-generating property will bring in the necessary monthly rental which, and if managed wisely can generate enough profit to buy an additional property to rent out. This process can go on until the investor has a portfolio of rental properties paying for themselves. – They could choose to stay in a rental property costing less per month than their own home, which they rent out, which will very likely result in a saving from the rental income, because their rent could be lower than their home monthly bond payments. – There is a constant growth in the requirement for accommodation, so a sound property investment will be a guaranteed asset forever, and possibly the start of their property portfolio. Hutchison says this financial leveraging emphasises how important it is to keep your credit history untarnished, because when you apply for a home loan, your history regarding your personal instalment payments, leasing finance, mortgage loans, credit card debt, overdrafts and general loans are all considered. Consumers’ credit-risk profiles impact their access to credit, he says. Which factors influence property values?

Aspects to consider when deciding on a property to buy include the historic investment growth in the area, proximity to commercial offices, proposed new developments, schools, and also the general state of the neighbourhood, says Hutchison.

According to Absa’s Housing Review for the second quarter 2015, the residential property market will always be driven by economic trends, household finances and consumer confidence, which will affect the affordability of housing and the accessibility of and demand for mortgage finance. This means that property prices will invariably change with inflation over the years, particularly if the property is in an area or suburb that is sought-after, he says. Hutchison advises that it is essential to research your area of choice properly before you invest in a home, and not just because it appeals to you. Aspects to consider include the historic investment growth in an area, proximity to commercial offices, proposed new developments, schools, and also the general state of the neighbourhood, he says.

It is also true that the more popular suburbs appreciate at a higher rate than the rest, and your investigation will highlight this fact. The annual appreciation of your property is therefore affected by the inflation rate, general demand and also the infrastructure of the suburb.

Together, he says these factors can ensure property appreciation of more than 15% per annum, which is much higher than any fixed deposit investment. Hutchison says it is also important to maintain your home, although it sometimes feels like a never-ending and ongoing effort. Money spent on maintenance should be budgeted for and properly planned. “However, remember that when you eventually sell your home, a renovated and modernised home will always attract the current market value from buyers.” Current macro-economic factors affect property prices, both up and down, he says. Increased interest rates, fuel prices, water and electricity always tighten household budgets, and owners may have to sell due to affordability. He says the irony here is that this creates opportunities for cash flush buyers to invest, and the affected sellers have to sell their properties to downscale to more affordable homes, or rent until the situation improves.

http://www.property24.com/articles/why-property-investments-are-a-good-bet/22290 – Property 24

Leave a Reply

Your email address will not be published.