developing tourism in the country. Added to this, section 12J of the Income Tax Act( which allows an investor to put money into a venture capital company and receive tax exemption on that investment) has been exploited by some astute early investors to fund hotel acquisitions and expansions. Hotels as an investment, as well as backpackers, and other hospitality investments are really picking up as a result.
Ownership costs will become a real issue The costs of property ownership will begin to be felt in 2017. Industry analysts we engage with have pegged the current cost of owning a property to be double that of renting! Increases in maintenance costs, collection fees, servicing interest, levies and municipal rates and taxes will become a real liability for the average property owner.
A sudden increase in any of these, coupled with a tenant who suddenly loses their job, or a business that goes bust, will make property ownership a lot less attractive to the average investor looking to spread their asset classes. It will also give new investors pause for thought and our partners have told us they are expecting much longer sale times – an uncomfortable position for someone pinning their hopes on property as a capital asset.
No such thing as passive property investments
The property market has changed over the past two to three years. You can’ t make money out of yield compression anymore. You can’ t expect returns by
simply holding the property, you must add value if you want decent returns.
You might need to build, re-model and even change the use of the property( airBnB, storage, co-working space and other alternate uses would be examples). Unless you buy very cleverly, or tap into a distressed deal, the traditional returns will simply not materialise.
Added to this, there are also costs to get out of property transactions. These include the tax implications when you want to sell, accounting and auditing costs of deals and, of course, you need available finance to ensure you can cover all of these costs.
Abandon tradition and embrace reality Despite the lackluster economy and fairly gloomy outlook, property still offers great opportunity for the astute investor. The key to success for this year, and beyond, will be a willingness to abandon traditional thinking and expectations.
Investors who are willing to see new uses for property and are willing to tap into the new way of living and working – where people are only willing to pay for what they use – will still be able to take advantage of great deals.
For this, they will need to find partners and investors who are able to see the business case beyond the traditional property valuation, and who will back the individuals and their acumen as much as the deal they are presenting.
RESOURCES
Paragon Lending Solutions
www. reimag. co. za MARCH 2017 SA Real Estate Investor 57