How to get the best price possible

In recent years, South African property has been an excellent investment, particularly in the most sought-after coastal regions, where prices have risen fastest.

There are various kinds of property investment. Your home is an investment in that it provides you with rent-free accommodation. It may also yield a return in terms of increased value (a capital gain), although that gain may be difficult to realise unless you trade down or move to another region or country where property is cheaper. Of course, if you buy property other than for your own regular use, e.g. a holiday home, you will be in a position to benefit from a more tangible return on your investment.

There are four main categories of investment property:

• A holiday home, which can provide your family and friends with rent-free accommodation while (hopefully) maintaining or increasing its value; you may be able to let it to generate supplementary income.
• A home for your children or relatives, which may increase in value and could also be let when not in use to provide an income.
• A business property, which could be anything from a private home with bed and breakfast or guest accommodation to a shop or office.
• A property purchased purely for investment, which could be a capital investment or provide a regular income, or both. In recent years, many people have invested in property rather than shares or savings to provide an income on their retirement.

A property investment should be considered over the medium to long term, i.e. a minimum of five and preferably 10 to 15 years. Bear in mind that property isn’t always ‘as safe as houses’ and investments can be risky in the short to medium term. You must also take into account income tax if a property is let and property taxes. Capital gains tax is charged at normal income tax rates in South Africa and you may be liable for tax on any profit made if the property isn’t your main residence. You also need to recoup purchase costs of 10 to 12 per cent when you sell.
When buying to let, you must ensure that the rent will cover the mortgage (if applicable), running costs and void periods (when the property isn’t let). Bear in mind that rental rates and letting seasons vary with the region and town, and an area with high rents and occupancy rates today may not be so fruitful in the future. Gross rental yields (the annual rent as a percentage of a property’s value) are from around 5 to 10 per cent per year in most areas (although gross yields of 15 per cent or more are possible) and net yields (after expenses have been deducted) 2 to 3 per cent lower. Yields vary considerably with the region or city and the type of property.

Before deciding to invest in a property, you should ask yourself the following questions:

• Can I afford to tie up capital in the medium to long term, i.e. at least five years?
• How likely is the value of the property to rise during this period and by how much?
• Can I rely on a regular income from my investment? If so, how easy will it be to generate that income, e.g. to find tenants? Will I be able to pay the mortgage if the property is empty and, if so, for how long?
• Am I aware of all the risks involved and how comfortable am I with taking those risks?
• Do I have enough information to make an objective decision?

Buying for investment

What you should know

One of the major considerations for anyone contemplating buying a home in South Africa is whether they can afford to buy there and, if so, what kind of home can they afford and where?

Foreign buyers have traditionally been attracted by the relatively low cost of property compared with that in many European countries. However, prices have risen considerably in the last few years, particularly in the cities and coastal regions, and property in the most popular areas is no longer as much of a bargain it once was, which can come as a surprise to newcomers. In fact, there are few bargains left, except in remote areas.
Nevertheless, property in South Africa remains good value compared with that in many other countries (sometimes very good value), particularly rural properties with a large plot. A slice of South African sunshine style needn’t cost the earth, with the average house price at the end of 2003 estimated by the Cape Argus newspaper to be R418,000 (£36,350), although the average price in the desirable areas of the cities and coastal stretches favoured by foreign buyers was considerably higher.
According to the same report, the average price in Cape Town was put at R451,000 (£39,000) and much higher in the best areas of the city. Whereas a modest, detached property in a quiet coastal area two hours’ drive north of Cape Town can cost as little as R240,000 (£21,000), you will have to pay a minimum of around R2,170,000 (£190,000) for a similar property in a trendy marina area of the city. And for those with the financial resources the sky’s the limit, with large, luxury apartments and houses in the best areas of South Africa costing many millions of rand.

If you’re seeking a holiday home and cannot afford to buy one outright, you may wish to investigate a scheme that provides sole occupancy of a property for a number of weeks each year rather than buying a property. Schemes available include part-ownership, leaseback and timesharing.

Don’t rush into any of these schemes without fully researching the market and before you’re absolutely clear what you want and what you can realistically expect to get for your money.

Garages & Parking Bays

The cost of parking is an important consideration when buying in a town or resort in South Africa, particularly if you have a number of cars.
A garage or private parking space isn’t always included in the price when you buy a new apartment or townhouse in South Africa, although secure parking may be available at an additional cost, possibly in an underground garage. Modern detached homes usually have a garage or a basement that can be used as a garage. Smaller homes normally have a single garage, while larger properties may have garaging for up to four cars. A lock-up garage is important in areas with a high incidence of car theft and theft from cars (e.g. most cities) and is also useful to protect your car from climatic extremes – particularly too much sun and heat.

Without a private garage or parking space, parking can be a nightmare (and dangerous), particularly in cities and during the summer in busy resorts or developments. Free on-street parking can be difficult or impossible to find in cities and large towns, and in any case may be inadvisable for anything but a wreck. If you’re buying in a large development, note that the nearest parking area may be some distance from your home. This may be an important factor, particularly if you aren’t up to carrying heavy shopping hundreds of metres and possibly up several flights of stairs.
It’s usually cheaper to rent a parking bay than a garage, but even these can be expensive: in outlying areas of Cape Town, for example, the price of a parking bay is between R38,000 (£3,300) and R45,000 (£3,900) and in the City Bowl or the fashionable central area of Long Street, a bay can cost between R70,000 (£6,00) and R100,000 (£8,700).

The cost of a garage or parking space isn’t always recouped when selling, although it makes a property more attractive and may clinch a sale. Parking isn’t usually a problem when buying an old home in a rural area, although there may not be a purpose-built garage