In a property market that is unlikely to show appreciable growth in the
short term, investors may want to consider exiting increasingly
expensive properties and reinvesting in new markets that will come
online in the near future.
This is the view of Rob Stefanutto, MD of Lew Geffen Sotheby's
International Realty, Atlantic Seaboard. "Although certain sellers
continue to achieve record prices, this phenomenon is evident only in
the top end of the market, which is driven by individuals who are in a
position to ride out the negative effects of interest rate hikes.
Investors that are more acutely impacted by the shifting market need to
take a careful look at their risks," explains Stefanutto.
Stefanutto warns sellers against holding out for unrealistic prices as
buyers are now in a much stronger position to negotiate. "Investors
should be careful not to get trapped in properties that can no longer
deliver good returns. They may find themselves using more and more of
their spare credit to fund their investments, making it increasingly
difficult to capitalise on emerging opportunities," he says.
By reinvesting in new markets that could have legs in the future,
individuals can remove the immediate pressure from their households,
whilst staying in the market. And as rental returns dwindle, less risky
opportunities will pay off in the long term.
Stefanutto points out that a one bedroom property in the Cape Town CBD
which cost R700 000 three years ago may be currently achieving a monthly
rental of R5 000. Bond repayments on such a property would now cost in
the region of R8 000 a month, with an additional R1 200 for levies. The
result is a monthly shortfall of R4 200 or R50 000 over a year.
"If you look at an area in the Cape like Parklands, you will find
significant rental demand. Investors could sell their one- bedroom CBD
property for R1.5 million and utilising there profit made over the last
few years to gear up other properties for instance buying a three
bedroom, two bathroom, double garage property in Parklands for a little
over R1 million, to be rented out at R4 000 per month. Risk can be
reduced to R500 000, with a R5 500 monthly bond repayment. Rates on this
property will come in at around R350 per month, reducing the shortfall
to R1 850," explains Stefanutto.
In conclusion, Stefanutto comments that innovative opportunities should
be sought out by investors in order to maximise returns on their
property investments and reduce their risks.