Invest in Stellenbosch student flats

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31 May 2013

Stellenbosch University (SU) is among South Africa's leading tertiary institutions. Every year, thousands of students from all over the country stream to this beautiful town and exceptional campus. Although close to 5 200 students can be accommodated in 27 University residences, the demand far exceeds the supply. In total, 27 823 students were enrolled at SU in 2012, resulting in over 20 000 of them having to arrange private accommodation.

According to Becker, growth in the area can mainly be attributed to the scarcity of well priced property.

This is according to Jacques Becker, Seeff Stellenbosch agent, who says there are many factors to take into account when buying property in Stellenbosch, be it for a long-term investment or simply a place for your child to reside in during the course of his or her studies.

He says at the moment there are more than 170 apartment blocks in Stellenbosch available to invest in, although, finding the right place in your price range requires a lot of homework.

Becker recommends that prospective buyers do a lot of research on specific areas and apartment blocks and narrow down their search before entering the market. “You may be tempted to jump into the car and drive down to Stellenbosch for the weekend, but this is generally not a good idea. You probably won’t be able to gain access to a lot of properties on short notice over the weekend and a trip like this could result in a bad and hasty investment”.

He says the position, security and price of a property are major considerations. He advises buyers to look at the current and potential income, and the risk of an empty apartment. “Pay attention to finishes, available parking and costs of owning the property. How long you are planning to hold on to the property for also plays a role.”

Becker says a good starting point is to get to know which areas or apartment blocks are considered better than others. Keep in mind that in some areas a similar apartment could differ quite a bit in price depending on which side of the road it is, he says, and this is especially true around the edges of campus.

More educated buyers agree that the property hot spot in Stellenbosch is found in the area between the borders of Banghoek road, Die Laan, Andringa street and Cluver/Marais streets. Becker says this area is more expensive and sought after as it is closest to the campus and owners can also expect to get a better growth in general. “This is not cast in stone though as there are good apartment blocks outside this area as well as blocks on campus which have a slower growth”.

According to Becker, growth in the area can mainly be attributed to the scarcity of well priced property. He says buyers who have the means to buy are often unwilling to compromise on a specific position or they don’t have the time to wait for the right property and then end up paying premiums for these apartments. Ultimately, he says this premium price becomes the new market value, hence the growth and sellers in the same block who go to the market hereafter want to achieve the same price or better.

Becker says the bulk of apartment blocks in Stellenbosch are situated within a one kilometre radius of classes, making the actual campus quite small. “In my opinion, apartments between Banghoek road and ‘Die Laan’ qualify as campus property, although the engineering faculty is on the other side of Banghoek road. Prospective buyers need to be mindful that some properties are sometimes wrongly advertised as on campus”.

Property prices drop significantly the further you move away from the campus area to the north or the west.

He says although property can cost less, your expected rental income versus price should be better than on campus. “Growth, however, could be affected and it could be more challenging to secure tenants on a permanent basis. Selling off campus can be more difficult if not priced correctly, although there are more buyers in the lower price ranges and we are in real need of well priced properties for these buyers”.

Becker says in short, it boils down to better growth but less income versus price on campus and a better income versus price but less growth, off campus.

He says there are few properties that will achieve both a good percentage income versus price and good growth depending on what you believe is the right investment strategy. There are, however, certain blocks where the opportunity exists, but various factors play a role, he says.

“Buyers need to be mindful when purchasing properties which they'd like to renovate. Firstly, consider for how long you’ll be investing in the property. Buying, renovating and selling immediately rarely works unless you know there is enough room to do so or if you really strike a big bargain. Usually, the costs of transfer, renovation plus agent commission will not allow you to sell with a profit immediately”.

Becker says there are ample examples of buyers who over capitalise and when it comes to selling, their marketing price is out of line with the rest of the scheme or the area because a general growth is applied by the owner plus what they have spent on renovations. He explains that if an apartment is bought for your own children, they will reap the benefits of an upgrade or renovation, but it does not necessarily increase the property’s value by the amount you have spent. It will however help to impress with prospective buyers.

Renovating can be beneficial when, for instance, you decide to convert a bigger, usually older property from a one bedroom to a two bedroom or a two bedroom to a three bedroom, giving you an extra monthly income. An extra bedroom should also increase the value immediately.

Becker says the problem is that there are only a handful of apartment blocks that lend themselves to the idea of expansion. “If this is your plan with a specific apartment, it’s wise to make sure that you are in fact allowed to do so, what it will cost and the right avenues to be followed. Also, keep in mind not to squeeze an extra bedroom into a property by sacrificing something like the lounge”.

Ideally, he says, you want the property to look like it was designed that way in the first place. He says also consider parking when converting and depending on the position of the apartment, the lack of allocated parking bays could be a drawback when selling.

The cost of owning the property such as bond costs, levies, rates and taxes, maintenance and management fees should be taken into consideration when looking at your monthly return.

“Apartment blocks with a lift for instance often have higher levies than other blocks while facebrick apartment blocks with no lifts usually have the lowest levies. It also depends on the amount of units in a scheme - the more expensive the property, the higher the rates and taxes of course. Most apartments have a prepaid electricity meter which the tenants pay for.”

Becker recommends having a rental agent, especially if you reside far from your property. He says the management fee of a rental agent is usually around 10 percent  and the agent draws up the rental agreement, does the credit checks, FICA, holds the tenant’s deposit in Trust at no extra cost to the owner,  ensures payment from the tenant and deals with general problems that may arise. 

“The rental agent also checks the property before the tenant moves in as well as when the tenant moves out for any damage which could be subtracted from the deposit. You, as owner, will receive the rental income monthly, less commission, without having to deal with tenant issues directly. When maintenance needs to be done, the agent usually organises a quotation on your behalf”.

Becker concludes that it’s important for prospective buyers to weigh their options carefully. He says should you not be convinced that buying is the best option you must take into consideration how much rental will cost you in the duration of your child’s stay in Stellenbosch. He says it could cost you around R216 000 over a period of four years when the rent is R4 500 per month, and this amount doesn’t take yearly increases into account. 

“From what we’ve experienced, parents usually buy for their children, and when they are done studying, hold onto the property for a few more years, receiving a rental return on the property, before selling. Of course factors such as buying cash or bonding the property should also be taken into consideration”.

Everything considered, this time of the year is a good time to start marketing your property in Stellenbosch if you wish to sell to the parents looking to buy to use for 2014. There are already quite a few parents looking and it gets busier as they get closer to the end of the year.  

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