Property and Value

[tec0]

The last few days I saw a new side to business especially in the UK property markets. It has come to my attention that a lot of owners are upgrading their homes to the new so called “green standards” now as old as this topic may sound is there any value in making your South African home green?

When we look at our home market systems you will see that most good sized homes goes for round about R800000 to R1000000+ depending the aria and condition of the home. Now these are for the basic home. And I think the words “basic” with the amount of a “million plus” shows that the market is booming despite all the economic “problems”

Now what “if” the green factor hits South Africa? Will property value drop? Homes able to generate their own power and water purifying units are becoming a norm but what about insulation, “new age” materials and most important of all security... Personal security is a basic must but what is security? Is it security door or an alarm system or perhaps a housing-complex? Is your property in a “red zone” and what has that done for its value?

These are the new questions that will face the property market and right now it is not a promising picture. Most “large homes” are between 25 to 30 years of age depending on location and most new properties are rather small and are basically a 2 bedroom flat with a massif price tag?

My argument is: Are South Africans being pushed by the banking systems to go for smaller properties. If so what is the 10 to 15 year benefit if that property is to be sold. What possible modifications can you do to add value to a property that has no space to expand?

The point is: Is a 1 million rand property worth it if it is only a 2 bedroom flat with no possible way to expand and or upgrade? The answer is no it is not so why is property developers so focused on these kinds of developments...

What is your view on this?

[Dave A]

Is a 1 million rand property worth it if it is only a 2 bedroom flat with no possible way to expand and or upgrade? The answer is no it is not so why is property developers so focused on these kinds of developments...

The goal of the property developer is to maximise their return, not to maximise the potential future development return for you

For people in these units, the most likely remaining potential lies in the finishes. Improving the kitchen, bathroom, perhaps the built-in cupboards in the bedrooms, light fittings etc. could produce a reasonable return on investment.

Although you'll also need to bear in mind the three most important things in real estate which will affect your ROI - location, location and location.

[tec0]

Well location is one thing. Let us say the location is good, safe and close to the local malls and other places of business. Also why not include good security and a few extras like two bathrooms. Still it is a 2 bedroom flat with only a single space for your car. Now if I am so successful that I can “rent” the place for let’s say R8500 a month “excluding your electricity bill” you are effectively losing round about R 102000 per year more or less. Now that is a lot of money to lose...

Now if the banks where to drop their profit margin that same property can be yours in 7 years or less. See I happen to know a place that “rent” there flats for R8500 and I just happen to know that they want round about R500000 more or less for the unit in question. So it is cheaper to buy then to rent but the banks will not give loans because according to them you and I cannot afford it but we CAN afford to rent the damn thing for R8500.

So if people become more demanding and “Green” houses become the popular choice then the banks and developers stand to lose a lot of money because they will NOT be able to sell flats anymore simply because there is no real room for improvements.

The second scenario will come into play when developers must integrate new technologies as standard!

[wynn]

Like Dave sez! Location, Location, Location.

The market actually dictates the price of any property, what the 'willing buyer' is prepared to pay and what the 'willing seller' is prepared to accept.

The reason certain properties are valued way beyond their replacement cost and rent out at such high rentals is due to a number of factors, such as distance to places of work/entertainment/recreation etc.

I could buy a huge luxurious 5 bedroom house with triple garage on a quarter acre plot on the outskirts of town in a crime ridden redlined area for less than a two bedroom apartment with only covered parking in a secure complex opposite the beach, or I could for the same cash buy an older 'bog standard' three bed residence 'close to schools/shops' in an established 'Burb' where the services are good and the crime rate low.

It would also be false economy to buy the right property so far from work/entertainment/recreation etc. that the saving on bond repayments is outweighed by the cost of travelling back and forth.

Another factor, is that developers will develop where the demand is, where they have the best chance of selling quickly at profit and not be stuck with luxurious 'white elephants' in areas nobody is interested in.

Green building is gaining momentum, but here in good ol RSA we have, in most cities, a milder climate than most Northern and Western countries so besides 'think pinking' our ceilings and 'solar powering' our geysers the style of building accepted by most (brick under iron or tile) needs less greening than the insulation and use of sustainable product required of the timber structures found in those first world countries.
Yes we are going to have to recycle grey water and cut down on energy consumption and consider sustainable building products etc. but we have an abundant supply of clay for bricks and roof tiles, coal to fire them, steel for roofing and framing, replaceable timber (nobody uses yellowwood for their roofing & flooring anymore) and so on to make sustainability a non issue.

The Banks are not your friend, they are a business and will maximise profits wherever they can and seeing that there are so few and they all behave the same way what else can we expect.
We need to reform building societies, like the old days where money was deposited to earn a good return but not leant out at usury like rates like banks do.

[tec0]

OK location location and again location... I live in a “red zone” or so I am told by the police... Crime is out of control and the shops are a 45min drive depending on traffic and traffic officers....

Homes are valued at R800000 and can go up to R1000000+ easy... Now the location is undesirable “I am surrounded by empty homes” still when you look at the asking price one must wonder...

[Dave A]

when you look at the asking price one must wonder...

Yep - the real market value is what they sell for

[tec0]

That is the thing; these old homes are really falling apart. Honestly the only true value is the size of the plot. You can do some real rebuilding but the crime factor is the thing that I can do nothing about.

My question is “with the crime problem in mind and the age of the building why is the prices still so very high? The truth is one can do better but for me it comes down to what I like. I like big old houses and don’t mind spending the money to fix them up “from time to time” but the sad truth is 30 years is a long time for a house, not to mention all the mining in the surrounding aria...

All the underground demolition has left its mark with massif cracks in the walls and structural damage especially along the foundation “red light” if you ask me but that is exactly my point. Why is it so damn expensive knowing that this place is a future death-trap?

[twinscythe12332]

because someone would like you to pay that amount. Doesn't have to be fair. As long as there is a buyer...

[wynn]

Also check if the area can be rezoned or is about to be proclaimed rezoneable, that is usually an indicator as to why 'not such nice' properties are asking so much.

In EL my last property was like that, worth 50% more than the exact same house three blocks away because I could rezone to business4 and that was what was in demand.

[tec0]

The property cannot be used for business nor does the possibility exist. Still I actually found a property that is totally messed up for R1.5 million in the same general area this is a joke! The place is in a state of ruin but the price is there and I am thinking another empty house... fact is this asking what you want deal is not working and I do feel that some regulations may be in order?

[Dave A]

Asking is one thing - getting is another. Put in a "cheeky" low offer if you're interested. You never know...

[wynn]

Teco
After what you have described, crime, cracks, ruination perhaps the best alternative is to walk away.
There are plenty bargain properties available at the moment, make a better choice.
Look at other properties for sale in the area and make offers if you must.
After all the asking price may be wishfull thinking for an asset someone else overpaid for in the first place.
Is subdivision an option? (fix the existing house, build your dream house on the other half, subdivide and sell one or both)