Property Investment and the Cape Peninsula11th Jul 2017
People relocate for a variety of reasons, whether it is a job opportunity or a change in lifestyle, communities have naturally recurring life cycles. The Cape Peninsula has seen a rapid increase in property investment, but overall, property seems as solid an investment as ever, especially within a residential or mixed-use residential estate. To bare in mind, are a few simple considerations.
“Mobility is driving demand, increasing residential property values and rentals on property investments,” says Mike Greeff, real estate specialist and CEO of Greeff Christie’s International Real Estate. “And right now with growth rates of between 14 – 20%, there is very little to beat investing in property across the Cape Peninsula.”
A property should be considered as a medium to long term investment – preferably over 10 to 15 years. However when you sell, you need to recoup purchase costs of 10 to 12 %. You should also take into account income tax if a property is let, property taxes, and you may also be liable for tax on any profit made if the property isn’t your main residence. Capital gains tax may also affect you if you own more than one property and is charged at normal income tax rates in South Africa.
Despite these “future costs”, Greeff strongly advises South Africans get a foot in the door now, as demand has spiked due to a string of purchasers relocating from Gauteng and KwaZulu-Natal as well as a steady stream of international investors, ultimately pushing prices up. (Premier Helen Zille told the Western Cape legislature earlier this year that 56% of mortgage bonds registered by Gauteng residents in the last year were for properties in the Western Cape – www.sowetanlive.co.za/news/2017/02/18/10-amazing-stats-thatll-make-you-wish-you-lived-in-the-fairest-cape)
However, there are certain types of property which perform better than others as investments. “Long term, your growth will be 30% more when purchasing sectional title or in a security estate than free-standing homes around you,” says Greeff. And Estate Living, the official resource for information around residential estates and developments, agreed. “Estate communities are no longer just about security, but a range of facilities and lifestyle offerings. These communities are managed and governed by rules and regulations that are designed to create harmonious environments for all residents, which will increase the value of the properties year-on-year and protect the estate assets.” comments Jaime-Lee Gardner, CEO of Estate Living.
There are also 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, the aim here is to provide rent-free accommodation while (hopefully) maintaining or increasing its value; and 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.
“Much can be said here for the AirBnB model, which continues to be a bone of contention for the property rental market, but cannot be denied or ignored as an investment property. Airbnb has allowed residents to further capitalize as a supplementary income to an existing home or as an additional income on a secondary property. Legislation is still to be finalised with the residential estate market relevant to this, however, many estates do accept Airbnb as a controlled system to monitor these short-term and holiday type hybrid rentals” – says Jaime-Lee.
Mike Greeff strongly advises investors to purchase a property directly from the developer at the inception of a project, as this is likely to yield decent returns. This is based on saving on transfer duties and high prices as it hits the market, meaning you could be able to “on sell” for a profit before even taking the keys.
“Be certain to check the terms and conditions on the Offer to Purchase when buying off-plan from a developer in any mixed-use development and security estate, as some developers do not permit sales within the first year of purchase. The alternative option is to agree to not sell the property at a rate less than what the developer is selling for.” – says Jaime-Lee.
Demand stays high and continues to increase across the estates and properties across the Cape Peninsula. Over and above the financial benefit, one can enjoy benefits of the ocean air, incredible mountain walks and wine farms to mention a few, and that in itself is the most valuable investment.