Is property

Investing in property means being in it for the long haul, as the market operates in distinct cycles. ‘There are periods of steady growth, stagnation and sometimes even crashes,’ says Erwin Rode, MD of Rode & Associates, a company that specialises in property research, economics and valuations. ‘Depending on when you buy, you could benefit from an upswing, or seriously regret your decision. For example, if someone bought a property around 2000 and sold it seven years later, they would have made a killing.’

So if timing the market is crucial, and no one has yet found that crystal ball to predict the highs and lows, an investor would simply stay in the market and ride out the cycles. Is it worthwhile? the bank to finance the property is known as gearing, which can work for or against the investor, depending on market conditions.

The greater the percentage of debt, the higher the gearing. The advantage of gearing is that the interest you pay is tax deductible if it is an investment property. On the downside, the higher the gearing, the harder you’ll be hit if interest rates go up or if you don’t have a tenant. In boom times, gearing increases returns, but in economic downswings, negative equity can occur, says Erwin. ‘This means the outstanding amount on the bond is more than the market value of the property.’

Before you jump in, you need to fully understand what you are in for and how it all adds up. You will need to invest some of your own money, and there will be ongoing expenses that might not be covered by the rental income. Making a mistake with any of these numbers could be disastrous.

‘All costs involved in purchasing the property need to be factored in,’ says Dexter Leite, Pam Golding Properties’ rental manager for the Cape Metro region. ‘This includes transfer duty and legal and bond costs. Then there are ongoing costs – insurance, levies, rates, maintenance, letting agent’s commission and vacancies, which need to be included.’ And remember, ‘an inflated assessment of rental achievable will only aggravate this situation’, says Dexter.

vacancy rate in South Africa, but has suffered the most as a result of lockdown: vacancies have nearly doubled quarter-on-quarter to 10.22%. Other provinces have also been affected: the Western Cape stands at 7.95%, Gauteng at 9.2% and KwaZulu-Natal at about 9.42%, at the time of writing.

Other external factors can have a major impact on vacancy rates, such as the Western Cape drought in 2018/2019. ‘The area was hit hard, which meant that many Airbnb properties were standing empty, so owners put them on the long-term rental market,’ says Michelle. ‘In early 2019, vacancies stood at nearly 10% in Cape Town as a result of this.’ In Gauteng, an explosion of new developments specifically intended for the rental

House Price Index, over the past 10 to 15 years, the Western Cape has shown growth far in excess of other provinces. The coastal area of eThekwini is next, with the lowest growth seen in Joburg. This trend is echoed in the Pam Golding Residential Property Index, which also shows that higher priced properties (R2 million and up) have enjoyed a higher growth rate over the past 10 years.

Apart from these regional differences, there are certain property investments that are more lucrative than others, says Sandra Gordon, senior research analyst at Pam Golding Properties.

‘There is a growing demand within niche markets, and not enough homes offering the correct location and housing type.’ These include student housing, retirement homes and mixed-use developments. ‘These are all new markets that offer a live-play-work lifestyle for the growing student numbers, and a lock-up-and-go lifestyle for retirees. The trend of mixed-use developments is found in growth or business nodes, often in the CBD, providing a lock-upand-go lifestyle close to work.’

Your rental income is taxable, but you will be able to offset all costs incurred in maintaining or financing the property over the year. This can include levies, rates, interest on your bond, maintenance, rental agent fees, and so on.

When you sell the investment property, the capital gain will be calculated (your proceeds, less any costs incurred in buying or improving the property) and added to your taxable income. As an individual taxpayer, the first R40000 per annum is excluded from the capital gains calculation, and 40% of the remaining value is added to your income for tax purposes.

Investing in property is not for the faint-hearted. It takes considerable time, and can be hugely stressful and financially devastating if you are not careful. It is crucial that you do your homework, and if being a hands-on landlord is not your thing, you can always access the property market by investing via Real Estate Investment Trusts (REITs).

While many people might have made some good money from property in the past, Erwin is cautious looking ahead. He predicts that property prices in South Africa will decline in the months to come as the economy battles a recession and other challenges.

Despite all of this, it might be a great time to buy property if you can get a bargain. Just make sure all the numbers stack up before you sign on the dotted line.