Property off the beaten track

Selected “platteland” properties present investment options for those prepared to bet on capital gains rather than investment income.

A recent look at the residential-property potential of a small Free State town on the N3, disabused me of my ideas about finding bargains in the countryside. But, say experts, there remain pockets on the “platteland” where catch-up price growth is still on the go and where an investor can hope to earn an eventual capital gain.

It is difficult to believe that this is still a possibility in the “dorpie” whose property market I investigated.

The prices of the small number of homes available for sale in this town are alarmingly close to those demanded in the north-western corner of suburban Johannesburg. Houses on offer ranged from a depressingly dark and dingy four-bedroomer priced at R890 000, to the obligatory prawn coloured Tuscan-style home (every town should have one, it seems) being marketed for over R4m.

I was wrong in thinking that a shortage of housing stock presented an investment opportunity: residential rentals work out to more or less half the mortgage payments.

YDL Property Wealth Educationalists’ Anton de Leeuw is not surprised at the news of the huge gap between rentals and bond repayments in this town.

Perhaps with the exception of Johannesburg and Durban, the South African residential rental market is relatively soft, which translates into low yields for property investors, he explains.

“Simply because of the sheer numbers and the potential for population growth, my first choice for property investing would be Johannesburg, followed by Durban,” De Leeuw says.

“This is where the demand is and therefore the likely higher growth in returns. As a generality, one will not find the same growth elsewhere,” he says, pointing out, though, that there are always exceptions.

But for those investors willing to bet on the possibility of capital gains – as opposed to an income from property – there could be opportunities in the outlying areas, where prices are still catching up.

Ian Fife, property editor for the FM, says that there is still a “fair discount” when one compares urban property prices with those of comparable properties in the country.

He suggests that the driving force behind the way in which property prices in the country are catching up with metropolitan areas is the trend in building costs: the cost of replacing these properties is rising.

Erwin Rode from Rode & Associates says that anecdotal evidence suggests that the further one moves away from South Africa’s economic centres, the longer it takes for a property boom to reach these regions.

“In many instances, property prices in the country only started rising about two years ago, compared with the upswing that began in 2000 in the big cities.”

Little hard evidence is available on price trends in small-town South Africa, though. The property experts sampled pointed out that little or no research has been done on the property markets beyond the metropolitan areas.

Yet, judging by the presence of well-known national estate agents in the town I visited, potential buyers by no means neglect these country properties. Time will tell whether these purchases are profitable ones.

This story first appeared in Moneyweb Business in the Citizen

Article by: Erika van der Merwe - www.moneyweb.co.za