When it comes to South Africa, people think about some of the most amazing cities like Cape Town, Johannesburg, and Pretoria, but what’s sometimes not well understood is the huge real estate potential there. The country witnessed persistent growth for years and given that the urban middle class continues to expand, the demand for new houses, shopping malls, and office blocks is also rising. Because of that, it would be appropriate to provide a few insights into the real estate industry and what people must consider before getting involved.
Traditional buying to let
This is one of the most popular real estate investing strategies in the world and South Africa is not an exception. Even though investors must be aware that are risks involved, buying properties to rent has the potential to generate significant returns, even if the purchases had been made with a mortgage. Over time, the rent, as well as the property value, go up, exceeding the costs related to costs or property maintenance.
Calculating the yield on a property is very simple and can be done by calculating the annual rental income minus all expenses and dividing the result by the price paid for the property.
Properties delivering the best returns
Each real estate market has its particularities that must be understood in order to invest in the properties delivering the best returns. In South Africa, one-bedroom and studio apartments had an impressive performance for the past 12 years. The reason has to do with a lot of young professionals (or first-time buyers) choosing an entry-level option (one-bedroom apartments). Students, first-time homeowners, and young people just starting their careers are people who find these options to be the best for them.
High-potential locations
Since real estate investors have a long-term view, finding locations with growth potential is a must. This factor will play a leading role in how the value of the property will increase over time as well as how long a property will take to sell. Based on the latest information available and on the claims from Ofir Eyal Bar, a popular real estate investor, the Western Cape province outperforms most of the other areas, while Cape Town remains the most lucrative city in the country. It’s worth to mention that despite Cape Town ranks as the most expensive cities, there are some locations like Goodwood, Richwood, Bothasig, and Edgemead, where real estate investors continue to find good deals. Passive investing – another viable option
In case the entire process of searching for the best deals, managing the property, hoping to sell in later, seems overwhelming, South Africa is a developed country where investing in listed property is an alternative worth considering. Instead of buying physical properties, real estate investors can place their holdings into property funds that invest in publicly-listed real estate companies. The main advantage of doing so is the broader exposure to a diversity of assets that include residential, industrial, and retail properties. This is also a more liquid type of investments, since selling a stake in a property fund is easier than selling a physical property.
Passive investing – another viable option
In case the entire process of searching for the best deals, managing the property, hoping to sell in later, seems overwhelming, South Africa is a developed country where investing in listed property is an alternative worth considering. Instead of buying physical properties, real estate investors can place their holdings into property funds that invest in publicly-listed real estate companies. The main advantage of doing so is the broader exposure to a diversity of assets that include residential, industrial, and retail properties. This is also a more liquid type of investments, since selling a stake in a property fund is easier than selling a physical property.