Uncertainty in the South African property market is providing good opportunities for first-time investors.
These opportunities are, however, not without their challenges.
First-time investors should therefore be fully versed in the risks involved and know how to navigate them, says Grant Smee, property expert and founder of OUST South Africa.
“Tenants are perceived to have more rights than owners and this automatically puts you at risk. South Africa is shedding jobs at a rapid rate and first-time investors need to know their options.”
They need to do their research into both the area where they are considering purchasing and the tenants they are considering.
“The property market is currently caught in a war between agents, tenants and owners which stems from a lack of education around finance and property.
“We allow our emotions, views and opinions to be driven by partial facts or misinformation. This leaves us vulnerable and results in poor decision making when it comes to property.”
Investing in property is like owning a business and, as such, transactions, management and administration duties will be constantly required. First-time investors who are unfamiliar with the requirements of these responsibilities should seek advice from industry experts.
With the need for a knowledge-sharing platform in mind, Smee has founded EPiC Networking to help educate investors and agents alike.
“EPiC is designed to encourage open conversations regarding the state of the market, innovations and ideas. Property investors are entrepreneurs who require guidance, knowledge and mentorship.”
He warns that additional and unforeseen costs are an inevitable part of the property game and first-time investors can find themselves over budget and overwhelmed. Special levies, insurance and added products such as OUST, a low-cost, high-value property eviction service, are often overlooked.
A provision for eviction costs should be considered a necessity because, as Smee explains, in cases where tenants default on their rent, the legal process is lengthy, and expensive.
He adds that a high-value item, such as a property, is vulnerable to negligent tenants and unforeseen costs.
Rookie investors should also note that while the phrase “location, location, location” might be overused, is it the most important factor to consider as it directly affects their return on investment.
“You may pay a little more when you buy but to buy in a better location means you have many more profitable options down the road.”
When choosing an area to invest in, Smee emphasises that prospective investors should look for transport infrastructure, the presence of other residential and commercial property developments and the lifestyle options the area offers.
Three areas on the rise are Soweto in Gauteng, Ballito in KwaZulu-Natal and the West Coast in the Western Cape.
Investors should also not underestimate the impact that tenants have on their investments. With the longer-term trend of rising house prices, it comes as no surprise that millennials now make up the dominant demographic in the rental market. In an economy of sacrifice, tenants look for value and convenience.
“Whether or not one succeeds as a property investor is dependent on how well one understand the property market (and tenants) in the area which they operate. If you research each aspect of your investment thoroughly, and budget for external fluctuations, you will be protected from most of the hurdles that trip up first-time investors,” Smee says.