Astute investors have traditionally turned to real estate in tough times – for several reasons, starting with the fact that the demand for rental homes always increases when consumers are under financial pressure.
“This means that if you buy wisely in an area that is well-located and well-priced, your rental property or properties will seldom be vacant and you will have a steady stream of rent coming in to cover costs,” says Berry Everitt, CEO of the Chas Everitt International property group.
“Other reasons to buy when the economy is in trouble include the facts that real estate is also a tangible, lower-risk asset like gold; that your acquisition costs will be lower because property prices tend to go down during recessions; and that interest rates also tend to be lower, which makes bank finance more affordable.”
And finally, he says, you will set yourself up for decent capital growth in the longer-term. “For example, many investors who had the courage and foresight to buy property straight after the 2007/ 09 financial crash have seen the value of those properties increase by more than 50% over the past 10 years.”
What is more, you don’t have to be super-wealthy to invest in real estate. Writing in the Property Signposts newsletter, Everitt notes that there are many areas where there is high demand for cheaper rental apartments and houses among lower-income tenants and students, for example, “and another advantage of buying units like this is that there is also no transfer duty payable on pre-owned homes priced at less than R1m.
“These days, with technology making it possible for many more people to work from home full-time, there is also rising demand for rental homes in country towns, where property purchase prices also tend to be much lower than in the cities.”
For those who don’t have the cash to buy an investment property outright, he says, there are many options for pooling their resources with others who are interested in doing so, or obtaining bank finance. “Crowdfunding is the most modern method of raising cash, but South Africans may be more familiar and comfortable with a ‘stokvel’ set up with people they know and trust, and our banks are also used to assisting these savings groups.
“Alternatively, you may wish to invest together with just a couple of friends or members of your own family, and in general SA banks are quite amenable to granting home-loans for such joint purchases, provided there is a clear agreement in place about who will be responsible for the bond repayment. This agreement will need to be drawn up by a professional, and once that is done, investors are also advised to consult a reputable mortgage originator and obtain pre-qualification for a home loan so they know exactly how much they can afford to spend.”
Next, says Everitt, you will need to decide on the type of property you wish to buy and where, go through the online listings for these areas to identify the best prospects, contact the agents involved to arrange viewings, and start negotiating price.
“You should also look out for new developments in your preferred areas, because there is also no transfer duty on units purchased directly from a developer, and because you stand to see rapid capital growth by the time an off-plan unit is actually built. In addition, newly-built units come with certain construction guarantees and generally require much less maintenance for the first five years of ownership.
“And whether you decide on a pre-owned or a new property, you should not delay buying now. Interest rates are already at the lowest levels in almost 50 years, there is plenty of good inventory to choose from at the moment, and rental demand is set to keep rising as people respond to the fallout of the Covid-19 pandemic by making changes to their lifestyles as well as their budgets.”