Avoid these 9 commercial property mistakes
Commercial property landlords stand a better chance of remaining financially secure over the long term if they spot red flags, like an incorrect tenant mix or under-insurance, early on according to Brett Webb, Head of Specialised Lending: Specialised Sales and Commercial Markets at Standard Bank, who says with economic conditions remaining tough, risks remain high in the commercial property space due to the long-term nature of the investments.
However, he says there are a number of steps landlords can take to avoid being tripped up.
Webb gives the following tips for commercial landlords:
There's money in suburban stands
Three major trends are converging at the moment to make large stands in established residential areas some of the best property investments available according to Richard Gray, CEO of Harcourts Real Estate, who says the first of these trends is the strong movement towards the better use of land and existing resources for environmental reasons, which is resulting in the densification of cities everywhere.
“In older cities such as London or New York, it is already very rare for anyone except the super-rich to have a garden of 1 000sqm or 2 000sqm, and infill and brownfield developments are familiar concepts.”
Responsible spending bodes well for home buyers
It seems that middle-class South Africans are now at last beginning to cut back on the money and time spent on ‘frivolous’ items, particularly holidays, and that this is being done in order to balance their household budgets and to protect their prime asset: the property that they are paying off according to Tony Clarke, Managing Director of the Rawson Property Group, who says this has been established through discussions with many of the Rawson Property Group’s franchisees and agents.
“It is now clear that the reckless spending of yesteryear is being cut back, and South Africans are no longer quite as spendthrift as they were in the 2004 to 2009 boom era.”
Many of the younger generation had until 2009 never experienced a serious recession, and had ‘played the credit game’ recklessly, making maximum use of hire purchase, credit card and access bond facilities, he says. In the process many got seriously into debt, from which they are still struggling to emerge.
High-rise apartment living in Johannesburg
Luxury apartment living has really caught on now in Johannesburg, where more than 2 500 upmarket units in 22 of the city’s most sought-after suburbs have been sold in the past year according to Lew Geffen, chairman of Sotheby’s International Realty in South Africa, who says their research shows that some 367 sectional title apartments were sold in Bryanston where there has been a considerable amount of new apartment development in recent times to meet the rapidly rising demand.
He says the Deeds Office records reveal that the average price of these apartments was R1.3 million, while the average price of the 360 apartments sold in Morningside, closer to the Sandton business and financial hub, was R1.9 million. (See table below)
Choosing the right estate agency franchise brand
When prospective franchisees consider investing in an estate agency franchise in their area they are often deterred by the fear that it will take them years to establish themselves, to build up a client base and to become widely accepted in the territory they serve, especially if the considered brand is not recognised as being currently effective or present in that particular area.
This is according to Wayne Albutt, Western Cape Regional Sales Manager for the Rawson Property Group, who says in reality a really good franchisee can be up and running and doing far more than just recovering his overheads within six months, but on average may take as much as three years to be fully established, highly competitive and possibly the market leader.
Albutt says when a new franchisee blames a lack of sales on the fact that he is new to his district, he is often ignoring the simple truth that he is not operating as efficiently as he should.
New laws a potential minefield for landlords
Renting out residential property has always been considered a relatively easy source of income, as well as a great way to get a foot in the property market, but this is no longer the simple exercise it used to be, and has become a potential minefield for owners wanting to rent out property on their own.
This is according to Lorraine Dellbridge, Rentals Manager for Lew Geffen Sotheby’s International Realty in the Southern Suburbs, Noordhoek and False Bay, who says originally only governed by the Rental Housing Act, the property rental market has in recent years become a complex legal field.
The National Credit Amendment Act (NCAA), which came into effect on 13 March 2015 is the latest in a string of new laws which have been promulgated in recent years, including the Rental Housing Amendment Bill, Prevention of Illegal Eviction from and Unlawful Occupation of Land Act, the Protection of Personal Information Act and, the Consumer Protection Act.
Beware the risks of unregulated property schemes
Knowing how well an investment is regulated is a critical consideration when putting your hard-earned money into any investment, and property is no exception, advises the SA REIT (Real Estate Investment Trust) Association.
“No matter how big or small your investment sum, knowing whether you are investing in a well regulated property investment, like a REIT, or placing your money in an unregulated property scheme, will help you understand what kind of risk you are taking,” says Mark Stevens, Chairman of the SA REIT Marketing Committee.
When property schemes are not regulated, their investors take on higher risks. In the past, there have been high profile cases where unregulated property schemes have run into serious trouble. It’s not easy to police these schemes, so it is important to have a strong regulatory environment in place.