For would-be property investors in South Africa, there is much doom and gloom in the news to dampen enthusiasm. With elections looming, prevailing economic uncertainty and slow growth predicted, property could seem like risky business.
Yet nothing could be further from the truth. When approached in the right way, investing in local property can enable smart investors to future-proof their wealth – no matter the current economic conditions. That said, the South African market currently holds several opportunities that many people are overlooking.
Let’s take a closer look…
1. Economic Uncertainty = Buyer’s Market
With overall investor sentiment being on the negative side, property prices have plummeted. Many homeowners are also struggling to keep up with maintenance and overall ownership costs, and are therefore looking to sell quickly.
The ‘high risk’ environment thereby makes it a classic buyer’s market, providing many juicy opportunities to enter the market at low prices. For those who can invest now, there will be major profits to be made when the market turns around and the economic sentiment improves.
Additionally, more people are looking to rent instead of buy – and rentals are becoming increasingly scarce. In a high demand rental environment, landlords can ask for more – and make properties ‘work’ even harder for them.
So for investors who are able to enter the buy-to-let market and purchase below market value, the SA environment arguably provides the ideal conditions to benefit from such a strategy.
2. Multi-Let to Meet High Demand
With skyrocketing population growth and a widening middle-class, South Africa is facing a dire shortage of housing. Added to this, many workers from the continent are migrating southwards to find work, and also need affordable housing.
While the government and property developers are scrambling to find solutions, savvy investors can provide solutions of their own – while enhancing their own investment portfolios for long-term growth. One such solution is to buy property and pursue a multi-let strategy.
So, instead of renting an apartment or home to one tenant, investors can structure the property in such a way that it can accommodate multiple tenants. This creates several sources of income, as opposed to a single stream of rental income. Notably, a multi-let strategy can work very well as student accommodation, particularly if the property is located close to universities and a social/urban hub.
When looking at this strategy, you must make sure to understand the municipal bylaws governing the area. (You will need to confirm details with your local municipality to get planning permission for any subdivision or outer buildings.)
3. Disruptive Technology Lowering Costs
As with most other industries, new technology platforms have transformed the ‘traditional’ real estate and housing markets. For example, the entrance of Airbnb has turned any homeowner into a potential commercial host – although this greatly depends on location.
For property owners in central areas or areas located close to major attractions (e.g. Sun City), Airbnb offers up low hanging fruit for property income.
Moreover, the proliferation of Airbnb sites is arguably impacting the longer term rental market in certain regions and making attractive rentals even more scarce (this ties into point 1).
Added to this, new real estate companies that leverage tech in an ‘Uber for property’ model (i.e. digitising the entire process) are offering sellers a flat fee for property sales in place of the traditional percentage-based model.
This provides other sellers with a key bargaining tool and thereby brings down the cost of purchase for buyers (significantly). In the long term, it translates into a key saving for investors and enables them to continue to expand property portfolios in a slow but steady manner.
Looking ahead, while the current economic climate may be a deterrent for some, it is undoubtedly a prime moment for savvy property investors to leverage current trends – and build their portfolios with a long-term view.