Uncertainty in the South African property market is providing good opportunities for first-time investors. These opportunities are, however, not without 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 must know their options.”
They must do research into the area where they are considering purchasing and into 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 transactions, management and administration duties will constantly be 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.
“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 additional and unforeseen costs are an inevitable part of the property game and first-time investors can find themselves over their 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, says Smee, in cases where tenants default on their rent, the legal process is lengthy and expensive.
He says 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, but to buy in a better location means you have many more profitable options down the road.”
When choosing an area in which to invest, 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 not underestimate the impact tenants have on their investments. With the longer-term trend of rising house prices, it is no surprise millennials are now the dominant demographic in the rental market. In an economy of sacrifice, tenants look for value and convenience.
“Whether one succeeds as a property investor depends on how well one understands the property market (and tenants) in the area. If you research each aspect of your investment thoroughly and budget for external fluctuations, you will be protected from most hurdles,” Smee says.