18 Jul 2013
Worldwide, in good and bad economic times, financial consultants have always advocated investing a significant portion of their clients’ portfolio in property.
This is according to Tony Clarke, Managing Director of the Rawson Property Group, who says in South Africa certain commentators have been advising people to stay away from property assets, which has led to ongoing debates with, as yet, no firm conclusion.
Clarke says the impression he gets is that those who have come out so firmly against property as an asset class have in some cases invested unwisely in property and are now damning the whole sector on account of their own mistakes. "Such people will often point to the probability that, in the next two or three years, residential house price growth is likely to be no higher than three percent in real terms."
He says there are, however, many others who, having done their research before buying, are happy with their purchases and are not suffering from buyer’s remorse.
When buying a residential property, Clarke says, it is essential to understand the home’s and the area’s growth potential. If the area is showing signs of being incorporated into the urban sprawl and of becoming a higher density, higher demand precinct, obviously values will increase. On the other hand, certain areas clearly have no prospect of economic growth and will not take off in the foreseeable future.
Then, too, the position of the property in an area is important, he says. Homes with a view tend to appreciate faster than those in less attractive positions, while those within walking distance of public transport are always particularly sought after, especially in the lower value suburbs.
Clarke says one of the big mistakes buyers make is neglecting to check the municipality’s plans for the area.
“It is not difficult to see when an area is taking off, but once that does happen, many single storey homes will probably be given a second storey which can spoil a view for neighbours and block out sunlight. Some may even be demolished to make way for three or four storey blocks, which, if not sensibly handled, can also impinge on the surrounding homes’ privacy.
He says emotionally charged decisions should always be avoided. Quite often, buyers decide that the investment is a good one, but then in their determination to get the property will allow themselves to be talked into offering a price that is well above what the market justifies.
It is also dangerous, he says, to make an offer to buy after only one visit. In most cases two or even three visits are essential and these are valuable because they allow buyer enthusiasm to cool off. It is also dangerous to be influenced by one or two favourable features, for example, granite tops or under floor heating, he says. These, while beneficial, may be offset by less satisfactory aspects which should certainly be taken into account.
According to Clarke, those who react too emotionally are likely to buy the first or second home they see and they then discover later that better options were available not far away - and they would have had a better deal.
Many purchases, he says, can be more viable if the buyer obtains a low interest on his mortgage bond. Buyers today, often grateful to be awarded a bond, frequently do not take the trouble to see if they can get better terms elsewhere.
He says one has to remind such buyers that banks are in competition with each other and if an applicant’s credit credentials are good the bank should be offering competitive terms. “Only ± of 50 percent of bonds today are, in fact, awarded at prime and some buyers are paying two percent or even 2.5 percent above prime.”
Having bought the property, many investors fail to observe another golden rule, which is to increase the equity in it as fast as possible by paying back the bond each month above the agreed rate.
Finally, Clarke says, the technicalities of any building which is about to be bought should be carefully checked by a civil engineer or an architect. Building inspectors can also provide a useful service, but, he says, he has yet to meet a building inspector who has comprehensive knowledge of structures, electrics, plumbing, gas installations, water proofing and security measures.
“Often they are experts in one or two of these aspects but not in the full range. Such inspectors need to be grilled to find out just how much they know and, if necessary, other inspectors then need to be brought in to check out the home. This is particularly important with regards to damp and possible structural defects.”
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