"The best time to invest in a residential property development is when conditions in the real estate market as a whole are cyclically at their
worst - and the most effective and rewarding way to do it is to buy off-plan."
That is the view of Andre Dippenaar, head of the development division of Pam Golding Properties in Gauteng - which currently holds mandates for marketing
in the province developments worth over R10-billion.
"It takes courage and patience to adopt a 'contrarian' strategy when investing off plan in residential developments at a time like now, when the
heads of most other investors are well below the parapet - but the returns can be disproportionately large in relation to the initial outlay," says
"The reason for this is that, at off-plan stage - before construction of the development - the developer carries virtually all of the risk, by bearing
the interest rate burden and meeting the other finance costs associated with the project. This is particularly so in the case of sectional title
"The 'early bird' investor, on the other hand, is risk-exposed only to the extent of a relatively small deposit, and is not called upon to fork up any
further capital until 18 to 24 months down the track, when the project is registered - almost certainly close to, or in, the top end of a new boom
cycle. At that stage the investor can either stay in or opt to walk away with a significant capital gain.
"Either way, it is a win situation," says Dippenaar.
Ronald Ennik, an executive director of Pam Golding Properties and managing director of its Gauteng division, says the worst scenario for the off-plan
investor is that the deposit may be lost - but this should certainly not be the case if adequate research and homework has been carried out....not only
on the developer but also on the estate agent involved.
"For instance, check the financial status and stability of the developer, his track record and his standing in the market. Do the same with the estate
agency. If they are found wanting in any respect, the investor should take his or her money somewhere else!
"Why? Because history has shown that, outside of the core of highly professional, financially sound and long-standing operators, developers and
agents come and go in direct harmony with the 2/3-year cyclical ups and downs of the market," says Ennik.
One example of the financially low entry levels available to off-plan investors is Shaft Citi, a 1 900-unit affordable housing development in
Germiston, where homes can be secured for a deposit of as little as R1 000! Previously a mine hostel, and designed as a lifestyle development aimed
specifically at the young-hip-and-happening first-time buyer, Shaft Citi is just 8km from OR Tambo airport and 12km from the Johannesburg city centre.
All of the units at the bottom end of the R150 000 to R500 000 price range have been sold by Pam Golding Properties (which has a mandate to market the
project), while sales in the other price categories are brisk - even though the official marketing launch is still two to three months away, and in
spite of the fact that the market is at or near the bottom of the current downcycle.
"The recent reduction in the interest rate is probably the first small step in the beginning of the next upcycle, which is, however, unlikely to get
into its stride much before the end of 2009," says Ennik.