The problem with this delayed strategy, says Bill Rawson, Chairman of Rawson Properties, is that the dead interest charges will in many cases make any subsequent development unviable.

Later the landowner may well find himself having to sell, in the process either making a loss or incurring Capital Gains Tax.

In today’s circumstances, says Rawson, it will usually pay to start discussions as soon as possible with a group (such as his own) which has development and selling experience and can find ways of getting a scheme off the ground.

“There are opportunities across the length and breadth of Greater Cape Town,” says Rawson, “especially now that we can anticipate drops of up to 2% in the interest rates in 2009. Those will reduce development costs and make it possible for people once again to start buying homes – especially at the lower end of the market.”

Asked to define the phrase “lower end”, Rawson said that he is thinking primarily of units which can attract rentals of R2 000 to R3 000 per month. Such schemes, Rawson Developers and Homebuilders have found, usually give an initial return of 4 to 7% on the investment – but within a few years become genuinely profitable, at which point they can, if the owner so wishes, be on-sold to one of the banks, property holding groups or syndicates, who traditionally prefer projects giving an adequate return from day one.

“This is the type of development people should be seriously considering right now,” said Rawson, “especially as the smaller contractors and most building material prices are dropping fast as order books dry up.”

If you do decide to go this route, why tie up with an independent firm? Why not go it alone?

Rawson says that it pays every time to take on as a partner a big firm which has both access to competitive finance and the coalface experience of selling.

“In a difficult market like the present,” he said, “the developer has to be able to read the market right.”

In the past, he added, many land sellers were “just a little too avaricious”, with the result that much of the vacant land held now is priced well above its current real value – but a shrewd developer will cope with this, he said.

“The point that I have to emphasise is that whichever way you juggle the proposals and the figures,” he said, “it will usually be more difficult to make a profit later, if and when conditions improve, because holding costs will have knocked the scheme out of sight. Going ahead now (with the appropriate market research) is the right thing to do – especially if your developer has a tested building team with paid-up plant and the ability to cut costs when he is able to get together with professionals in the conceptual phase.”

Article by: www.rawson.co.za