Where Do I Invest?

There will always be investors, irrespective of the market and the economy.  The difference when the economy is unsettled, and the market uncertain, is that investors are more selective about where they invest.

For the foreseeable future, the Rand will continue to be unstable and will react to any political or economic changes.  There may well be a follow-on impact on interest rates, but the powers-that-be will do all they can to limit increases given the significant pressure on keeping inflation at acceptable levels and stimulating the economy.

In uncertain times investors often turn to property.  It’s much less volatile than most other investments.  In addition to this, investors can often borrow from their bank to finance their property investment.

So let’s consider residential real estate as an investment option.  Residential rental demand is exceptionally strong – but not in all price ranges.  Highest rental demand is below R15,000 / month.  However, you wouldn’t want to play in the rental space below R6,000 / month as arrears rental rates are higher in this range.

With rental values increasing it’s not uncommon to achieve a gross rental yield of between 10-12% per annum.  So when you do the reverse calculation that means you would be looking to purchase an investment property between R720,000 and R1,800,000.  It doesn’t mean that options above this range aren’t worth looking at – but this the hot range with the lowest risk.

There are some other considerations.  You will want to purchase in a suburb and property type where there is steady capital growth.  For example, a property in a gated estate will escalate at a higher rate than one in the suburbs.

When it comes to sectional title units such as townhouses, apartments, and flats you may want to look at units on the ground floor which would appeal to small families or retired tenants – or in a block where there is a lift.

Access to information on the historical growth in a suburb is easily available.  Ask the agent you are working with or give us a call and we can supply you with the information at no charge.  Historical data is important to identify trends, so don’t ignore them.

A further consideration when investing is the time value of money.  For example, it’s a smart move to purchase a property off-plan at current market values that will still be built and for which you will only pay in the future.  Often a development is launched where you only pay in a years’ time or more.  By the time you pay for your investment you have already enjoyed significant capital growth.

When you shop wisely you will find intelligent investment opportunities in residential property.  Property remains one of the safest investment vehicles.  Do your homework thoroughly to ensure you select an investment that will give you a great rental return as well as strong capital growth.

Steve Caradoc-Davies
Principal

Harcourts Platinum

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