The coastal property markets in South Africa you should be investing in

Despite an overall modest slowdown in house price growth in South Africa’s residential property market, with house price inflation averaging at 4.88% in 2016, the three coastal metropolitan markets of Cape Town, Nelson Mandela Bay and Durban continue to outperform the interior metro markets.

Dr Andrew Golding, chief executive of the Pam Golding Property group, pointed out that while Cape Town remains by far the strongest metro housing market, Port Elizabeth and Durban also showed increasing growth in 2016.

According to the latest data available from Lightstone, house price inflation in the Cape metro averaged 11.5 percent last year (2016), while Port Elizabeth and Durban’s house price inflation remains above the national average at 7.2% and 6.8% respectively.

“We believe that market growth will become increasingly concentrated in hotspots which continue to experience high demand for a variety of factors, including convenient access to the metros or economic hubs, value for money, and as desirable and secure lifestyle locations,” Golding said.

“Apart from the ongoing activity along the Cape coast, the Garden Route areas from Mossel Bay through to Knysna and Plettenberg Bay are experiencing heightened demand for homes, mainly among domestic buyers making a lifestyle choice to relocate.”

Sandra Gordon, Pam Golding Properties senior research analyst, said the Eastern Cape region is an area to watch, attracting buyers who want a coastal lifestyle combined with good governance and value for money homes.

“With considerable investment in Coega and new nodes springing up, we may see this region developing and playing catch-up with the Western Cape and KZN North Coast areas.”

Golding said that Port Elizabeth is increasingly coming into its own on the back of ongoing investment in the city’s western areas and development around Coega IDZ, with residential property prices set for significant growth, particularly as people look to move from other provinces and cities to nodes or areas they perceive as well managed, safe havens.

In KwaZulu-Natal the strongest activity remains along the highly sought after North Coast strip from Durban through to Ballito which is popular among investors and end-users alike. Upmarket areas such as uMhlanga and Sibaya will continue to be high growth areas, he said.

Carol Reynolds, Pam Golding Properties area principal for Durban Coastal, said the quantum of developments in these areas is enormous, and this is a strong indicator of confidence in these suburbs.

“We foresee house prices increasing year-on-year in both uMhlanga and Sibaya and while some have cautioned against over-supply, the range of products is diverse, appealing to a spectrum of buyers from investors to retirees, executives and families.

“Durban’s North and South Beach areas, including The Point have increased in popularity, firstly as a result of the general upgrade to the Promenade and again due to their huge value for money, particularly when compared to other prime beachfront locations nationally and globally. Investors are starting to snap up the well-positioned units and renovating them with the expectation that the area is going to become highly sought after in the next few years,” Reynolds said.

The property expert said that a factor which is evident is that property is increasingly being seen as a secure investment in uncertain times. Those who cannot afford to buy will exert pressure on the existing strong demand for homes to rent. A further positive is the focus among developers on mixed-use developments, including residential apartments as well as hotels with appeal for the foreign tourists. “This new type of living provides opportunities for a new market with room to grow,” Reynolds said.

Thanks to Businesstech for this article
Economics of Buying a Beach House

Buying a beach house can deliver an excellent return on investment (ROI), provide you a reliable income stream and give you a place on the beach to vacation free of charge when you desire.

The method followed by many beach house investors is to purchase the house and then rent it out during peak tourism times. For example, a beach house owner in Florida would ensure his house is available for rent during the snowbird season of October to March, when residents of Midwestern and New England states descend on the Sunshine State to escape the cold.

Many real estate investors who find a beach house in an area with high rental demand and keep it occupied throughout the busy season claim to make enough money during those months to cover expenses for the entire year, effectively allowing them to live in the house for free during nonpeak season. The concept is remarkably alluring Owning a vacation home on the beach is something many Americans aspire to, while owning such a home for free is even better.

Before taking the plunge, however, understand the economics of owning a beach house and the challenges you face to join their ranks. Expensive real estate, high borrowing costs, exorbitant insurance rates, bills, and the ins and outs of property management represent some of the difficulties you can expect to face as a beach house owner.

Real Estate Costs
Nothing adds a premium to the price of a house like a beachfront location. Even a house situated merely within walking distance of the beach costs substantially more than a comparable house 10 miles inland.

For example, in Delray Beach, Florida, a popular beach town in Palm Beach County, the median house price in 2017 was $254,000, according to Zillow. However, rew beachfront homes are available for under $1 million.

The fact that real estate near the beach typically costs a lot is not groundbreaking information, but it cannot be overemphasized what a big investment you are making when you decide to buy a beach house. This makes it all the more vital to understand the economics of the investment, especially the costs you are likely to face.

Borrowing Costs
The mortgage interest rate for an investment or vacation property is almost always higher than for an owner-occupied property. Beach houses are especially challenging since, due to their high prices, it is likely your mortgage will be a jumbo loan, which tends to be costlier than a conforming loan.

On a loan amount of $1 million, a single percentage point added to your interest rate can hike up your monthly payment substantially. The principal and interest payment on a $1 million mortgage, at a rate of 4% and a term of 30 years, is $4,774. The same mortgage but at 5% interest costs $5,368 per month in principal and interest. A $600 per month difference may not sound like a lot, particularly when dealing with investment sums in the millions, but on a budget statement, it could be the difference between landing in the black and in the red.

Insurance Rates
The homeowners insurance on your beach house is likely to be several times more expensive than for your primary home. Almost all coastal states require beach homeowners to purchase flood insurance. Particularly on the East Coast, the premiums for this coverage have skyrocketed during the 21st Century, due in large part to several hurricanes pounding the region and causing widespread, costly damage.

A yearly premium of $10,000 or more for flood insurance is not uncommon for a Florida beach home. Other states on the East Coast, such as North Carolina, are more reasonable, but it is doubtful you will make as much in rental income there without the 12 months of warm weather. Insurance costs in California are typically lower than on the East Coast, but the state more than makes up for it with exorbitant real estate prices.

The monthly bills for a beach house extend beyond your mortgage, utility and cable bills. For one thing, your tax bill is likely to be hefty on account of your beach house’s value. Moreover, if your beach house is an income property, that means you must also pay for things such as marketing, advertising, hiring people to show your property, processing rent payments, and if you are unlucky, legal costs that stem from tenant disputes. This money adds up. Operating costs that do not include your mortgage, taxes and insurance can easily eat up half the revenue from your beach house.

Property Management
Property management involves a lot more than signing lease agreements and collecting rent checks. When something breaks in the house, such as an HVAC unit or refrigerator, it is your responsibility as the property owner to have it fixed. Grounds keeping, painting, roof maintenance and pest control represent just a few other things you must stay on top of as a responsible beach house owner.

Unless you are a full-time real estate investor without another job, it is doubtful you have the time or the desire to juggle these responsibilities on your own. Even full-time real estate investors generally do not manage their own properties because they have too many to track.

This means you probably want to hire a property manager to coordinate jobs such as landscaping, maintenance and repair. In addition, a good property manager can market your beach house during tourist season, execute lease agreements, handle evictions and late payments, show your property to interested renters and handle rent payments. Having a property manager you can trust is invaluable, particularly if you do not live within driving distance of your beach house.

That said, good property managers are not cheap. Depending on the extent of services, most property managers charge 6 to 12% of collected rent. This can eat into your margin quickly.
Read more: Investopedia